We're excited to announce the launch of Spot & Spot Margin Trading on Drift v2!

Spot Trading

Swap Assets Directly On Drift

Traders can now buy or sell spot directly on the Drift with immediate delivery and on-chain settlement. Once a trade is confirmed, this is reflected in real-time within your account balance. Spot trading on Drift sources liquidity from OpenBook DEX, as well as our own decentralised limit order book (DLOB), to ensure traders always have access to the best prices and trading opportunities.

Spot markets on Drift are also powered by Drift’s Just-In-Time (JIT) auction mechanism, allowing for deeper liquidity on-chain. When a user submits a market or limit order on Drift, it initiates an auction where different market makers compete to give traders the best price. If no offers are made within the first five seconds, the trade will then go through Drift’s AMM. The combination of the various liquidity mechanisms on Drift allows for greater on-chain spot liquidity.

Spot and spot margin trading provides traders with multiple ways to hedge their positions. For example, if traders believe that SOL might increase in price and they have a leveraged short open, traders can buy SOL on Drift’s spot market and decrease their short exposure to the market. Spot and spot margin allows traders to offset the potential for losses and effectively manage their risk on-chain.

Introducing spot and futures in the same platform cross-margined is a huge milestone for us and another step forward in our commitment to providing the best user experience in DeFi.

Margin Trading

‍Leverage Your Collateral To Maximize Your Returns

We are also thrilled to announce the availability of spot margin trading on Drift, in addition to spot trading. Spot margin trading allows you to leverage your deposits as collateral (up to 5x) to trade on Drift’s spot markets with leverage.

Spot margin differs from perpetual futures markets in that spot margin trading is done entirely on Drift’s spot market by borrowing the underlying spot from platform lenders, rather than synthetically on futures. Spot margin allows traders to borrow, sell short and leverage long underlying spot pairs, which in turn pushes borrow yields higher for lenders.

An example of how this works is taking a 5x leverage long on spot SOL using Drift’s spot margin system. Say Alice wishes to go long 5x leverage on spot SOL and currently has USDC. She has 1,000 USDC and wants to buy 5,000 USDC worth of SOL. What Alice does essentially is she uses her 1,000 USDC to borrow 5,000 worth of USDC on Drift, which currently has an annualized borrow rate of 13.35%. She then uses this borrowed USDC to purchase 5,000 USDC worth of SOL, which amounts to 200 SOL at $25 per SOL.

The level of leverage a trader can take in each spot market is determined by the protocol's risk engine, ensuring the safety and stability of our platform. For SOL margin trading, it’s set at 5x your initial capital.

Enabling Margin Trading

Margin Trading is not automatically enabled on Drift. To take advantage of this feature, simply navigate to your account settings and activate Spot Margin Trading for the desired accounts.

Hedged Trading Using Spot Margin

An example of spot margin trading can be illustrated with a user who wishes to enter a delta-neutral position on Drift without moving funds between exchanges.

For instance, if perpetual swap funding rates are negative, a trader may go long SOL-PERP using USDC collateral, then borrow the equivalent amount of SOL and sell short the SOL. The trader ends up earning the funding rate from the perp position while paying a smaller amount of SOL borrow costs, ending up with a positive delta-neutral position.

The capital efficiency with having spot margin in the same pool of collateral as perpetual swaps is unrivaled. Having both in one exchange eliminates multiple exchange counterparty risk, as well as operational risks, when funds get transferred from one exchange to the other to manage hedged inventory.

Conclusion

The launch of spot and spot margin trading gives traders new ways to trade on Drift. Whether you are looking to trade on spot with Drift’s deep on-chain liquidity or looking to hedge your positions, Drift’s new spot market opens up new opportunities. This integration of spot and futures in the same platform is a significant milestone for Drift and we are excited to release this  feature for our community.