# Trade

The ability to short relies on the ability to borrow an asset. With Particle protocol, *traders* borrow NFTs from *suppliers* and sell the NFTs to *marketplaces* on-chain; when the floor price of the NFT collection drops, traders can buy <mark style="color:yellow;">**any NFT from the same collection**</mark> to return. The price difference is the realized profit for the trader. There is zero platform fee for trading.

In the following, to concretely understand the life cycle of a short position, we describe the basic [composition](#short-perpetual-position) of a short position, how [profit and loss (PnL)](#realize-pnl) are made, and how [interests](#interest-accrual) are accrued.

## Short Position

When supplying an NFT to Particle protocol, each supplier specifies a desired *Collateral* for the position. To open a short position, a trader needs to deposit a *Margin* and sell the NFT to a marketplace on-chain. The margin, together with the *actual sell price* of the NFT, must add up to the collateral, which is then locked in the smart contract while the position is open. The figure below describes this following formula:

> Margin + NFT actual sell price = Collateral.

<figure><img src="https://2479077253-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FkqSXbjmzbhqaUKIhuDAU%2Fuploads%2FXuuejRWRw8cHEjzkGr3q%2Fimage.png?alt=media&#x26;token=f27fe110-8f24-4e99-8987-66229cb22500" alt="" width="563"><figcaption><p>Composition of a short position</p></figcaption></figure>

## Realize PnL

To close a position, the Particle frontend aggregates the current cheapest NFTs from different marketplaces for traders to buy, using up to the ETH amount locked in the position. Alternatively, traders can acquire an NFT from elsewhere to repay directly (accounted as `0` buy price). Upon position closing, the realized PnL for trader is&#x20;

> Realized PnL = Sell Price - Buy Price - Accrued Interest.

Any leftover portion of the margin is returned to trader at position closing. After position closing, if the trader makes a profit (i.e. the NFT price decreases), the margin will return to the trader, together with the realized profit. On the other hand, if the trader takes a loss (i.e. the NFT price increases), part of the margin will be used to purchase the more expensive floor NFT. The figures below describe the profit and loss scenarios.

<figure><img src="https://2479077253-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FkqSXbjmzbhqaUKIhuDAU%2Fuploads%2FWId23mzKKHGsRbU61D1p%2Fimage.png?alt=media&#x26;token=bcc7b15f-ac20-4b67-8268-f0468aa0e151" alt=""><figcaption><p>Trader profit scenario when NFT price drops</p></figcaption></figure>

<figure><img src="https://2479077253-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FkqSXbjmzbhqaUKIhuDAU%2Fuploads%2FDKgrozvkJwz1HwNPlnpN%2Fimage.png?alt=media&#x26;token=dae90636-88ac-41ca-8eef-a1ae536200fe" alt=""><figcaption><p>Trader loss scenario when NFT price increases</p></figcaption></figure>

By default, all returned amount is deposited into trader's account balance on-chain, for more efficient gas usage. The account balance can be withdrawn into ETH any time, and it can be used to pay margins for new positions as well.

## Interest Accrual

Each position comes with a demanded interest rate from the supplier. Among the competitive offerings from multiple suppliers, a lower margin (i.e. smaller collateral) typically incurs a higher interest rate, and vice versa.

The interest is only paid at the time of position closing (e.g. as shown by the profit and loss scenario figures above). Also, the accrued interest is paid from the realized profit or already deposited margin (i.e. no extra deposit needed).

For simplicity, the interest is accrued linearly by the rate. Particle frontend shows the daily interest payment in ETH for easier calculation for traders.

## Position Management

The positions on Particle protocol are *perpetual*. There is no expiration time for the positions. The NFT suppliers, however, have the flexibility to start an [auction](https://nft-docs.particle.trade/mechanism/auction). The auction lasts 36 hours and it is a best effort to acquire an NFT from the market using all available liquidity, with PnL returned to the trader. To balance the dynamics, traders also have the flexibility to [refinance](https://nft-docs.particle.trade/mechanism/refinance) to other supplier at any time. Details are in the corresponding pages.