Zero Risk Margin Trading with Good Entry
In this article we’ll take a look at Good Entry, a protected Perps trading platform on Arbitrum. I’ll explain how to use it and just as important: when not to use it.
What are protected perps?
Thanks to protected perps you can trade without any downside risk. This means you can open a margin trade, which will trigger at a given price point called the “activation price” or “strike price”.
Once the activation price is reached, you’ll start making money. If the current market price is below the activation price, you don’t get liquidated, you simply pay your hourly funding rate to keep the trade open.
To make things even more clear, you can see the “Payoff Chart” on the right side of the interface.
Going long
In this specific example, the price of Eth is $1,972.00 and the Activation Price is $2,000.00. Let’s assume we open a trade for 1ETH and we go long. This means that as long as Eth is below $2,000.00 you are only paying the funding rate and don’t accumulate a trading loss to the downside.
Going short
Going short is a little different, here we see that there is a buffer and our max loss price is $2,000.00, which is about 1.53%. But again, we can’t get liquidated on the trade itself.
What’s the catch? Funding rates!
If this sounds too good to be true, it is and it isn’t. All of the above is true, but the devil is in the details: we didn’t talk about the funding rates yet.
Just as with any leverage trading, you are borrowing someone’s money to keep a trade open and you pay interest in order to do so. The longer you keep your trade open, the more interest you pay.
But with Good Entry, this doesn’t stop there, you also pay a premium for the “protection” you get on your trade and that could add up. Just as an example, at the time of writing, the hourly funding rate on Good Entry for ARB/USDC is 0.0128% per hour or 0.3% per day which translates into 100% per annum.
At the same time, the hourly funding rate over at Apex is 0.00125% or 10% per annum. That’s a magnitude of 10x difference. Do note that this difference is extreme and will likely drop in the future as the funding rates on Good Entry are based on the utilization rate, meaning the more people borrow, the higher the funding will be.
This is a hefty premium and you’ll have to choose your entries & exits carefully to avoid the interest destroying your profits.
Limited leverage
Another important “catch” is that there is a limited amount of liquidity available and you’ll quickly notice that for now, trading size is limited to $2,000.00 . So if you were planning to do some big 100K leverage trades, Good Entry isn’t the place (yet).
This is however also good news, it means that the protocol makes sure there is enough liquidity to cover whatever margin is being handed out. And that in and by itself is reassuring.
Liquidation impossible? Yes & No
As mentioned earlier: you can’t get liquidated on the trade. However you can get liquidated on your funding. Imagine I am leverage trading with 100$ and I leave my trade open for a year: before the end of the year, my interest will outgrow my collateral and it’ll therefore be liquidated to pay the outstanding interest.
High funding rates, high rewards
Although the funding rates are high, there is an upside to the story: high yields for those who provide liquidity.
As we are paying double digit funding annual interest, it should come to no surprise that Good Entry is able to reward their liquidity providers with double digits yield as well.
It automatically creates a strong narrative for the upcoming launch of the $GOOD token, which will be backed by real yield being generated from v3 Swap Fees, Supply Interest and rewards.
What are the risks
Just as with any platform: DYOR. The basics of the platform look good and the dynamics make sense. The project is earning plenty on the funding rate to keep itself alive and with the introduction of the $GOOD token, they’ll unlock even more liquidity.
However: this is a new project, which means there is always smart contract risk and on top of that, the team is anonymous. Thankfully, Good Entry did an audit with Peckshield in May 2023 (ref. Medium Article) , but that is still not a guarantee.
Last but not least: you can’t get liquidated on the trade, but you can get liquidated on your fees if your collateral can’t cover your fees anymore.
Conclusion
Good Entry is a great tool for small leverage trades during volatile times. You want to play on moves that play out within a 1–2 week timeframe so you don’t lose too much on the funding rate.
For long term trades, the funding rates are currently too high. But that also means that you can earn some nice double digit yield by providing liquidity.
