Poloniex is an exchange for crypto currencies such as bitcoin. The exchange lists a bunch of crypto currencies that users can trade, and they also offer users the ability to trade a smaller number of currencies on margin. The exchange allows users to fund their own margin loans using an open market. There are some standard exchange rules that determine leverage and collateral required. The margin market works well and the current margin requirements (although blunt) encourages a very low (almost non-existent) loan default rate.
Margin lending is pretty straight forward. If you transfer funds into your lending account at Poloniex, you can choose to lend out your balance on your own terms. Poloniex provides the retail user with an easy interface, and advanced users can use an API to run bots. Borrowing funds is pretty easy too. In a nutshell, if you’d like to make a margin trade, transfer cash to your margin account. Once you have a margin balance, you can place an order. Your order will set a limit for the maximum rate you are willing to borrow and the price you are willing to buy/sell the coins against your loan. The cash you have in your margin account simply serves as collateral.
Borrowers can set a max rate they are willing to borrow for. As an example, if you want to borrow clam coins, but the rate at which the market if offering you clams is 0.0355% per day, and maybe you are only willing to borrow for a maximum of 0.01% per day, you can set this limit. Your order goes to the lending book market and waits until it gets a taker. Once you get funding, your margin order goes into the market and works the limit you set to either buy or sell.
Using the Poloniex margin market, its possible hedge the price of your clams sitting in a clam mining client. Deposit btc in the margin account at Poloniex. Then borrow clams to buy more btc at a rate that is less than the mining interest rate you are getting and earn a spread.
Another strategy that could be used is borrowing a currency with a low margin rate to buy an alternative currency that is not available for margin trading. For example, say it costs 0.01% per day to borrow ether. The user can deposit x btc in their margin account, borrow ether at 0.01% per day and then deposit x btc in their exchange account and exchange x btc for an amount of rep. This would have the effect of putting on a rep/eth trade at the eth funding rate