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Offline Xeldal

BitSharesX Leveraged Instruments
« on: August 13, 2014, 04:07:53 PM »

I see the meat of BitShares X as its ability to replace/replicate the ForEx markets to interface with the advantages of crypto, to provide the same hedging power you find in ForEx/Options/Futures.
https://www.finfx.fi/en/main-advantages-forex

ForEx is the largest market on earth by a long shot.  Average Daily Turnover at around 4.7 Trillion $.
http://www.investopedia.com/articles/forex/10/forex-market-history.asp

A usefull component of ForEx is margin trading where you can leverage your funds, often as much as 400:1.  Where $300 would allow you to control up to $120,000.  A 25pip movement on this account would cause a margin call.  25 pip moves happen in ForEx often in less than 10 secs. http://forextrading.about.com/od/riskmanagement/a/extremeleverage.htm

With BitSharesX, you could create a bitAsset set to to track bitUSD/bitEUR x 100, to mimic a 100:1 margin account.
or I suppose some asset meant to mimic an options or futures contract.  I'm not sure how these would work because its not a continuous market as the contracts expire and new ones would constantly need to be created/destroyed?.  (may not be a problem, i just haven't thought about them)

What is BitShares X solution to mimic these leveraged instruments?   

at first thought it would seem to magnify the issues faced with bitFDIC? https://bitsharestalk.org/index.php?topic=6867.msg91528#msg91528

Offline bytemaster

Re: BitSharesX Leveraged Instruments
« Reply #1 on: August 13, 2014, 05:08:18 PM »
Someone has to extend the credit and take the risk of default.   To take $300 worth of value to short $100K worth of USD is only possible with low volatility. 
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Xeldal

Re: BitSharesX Leveraged Instruments
« Reply #2 on: August 13, 2014, 09:32:14 PM »
I'm not sure I understand what your suggesting. With $300 the leveraged instrument wouldn't be creating 100k in value it would simply change in price as though it were 100k in the non leverage asset. 

Let me offer an example
If I create a bitAsset called bitUSDx100 it would trade 100x leveraged to the standard bitUSD

Lets say they both start valued at 100BTSX
It doesn't matter what the leveraged asset starts at(within reason), its only function is to move 100x faster than what it's derived from(bitUSD in this case)
Like the ETF UUP and UDN for tradeing the dollar index and ETN's UUPT and UDNT for 3x leveraged dollar index

If the value of a dollar in BTSX moves up 1% to 101BTSX  the value of a bitUSDx100 would move up 100% to 200BTSX (because its 100x leveraged)
conversely,
If the value of a dollar in BTSX moves down 1% to 99BTSX the value of a bitUSDx100 would move down 50% to 50BTSX 

So, If I understand correctly these high leveraged bitAssets wouldn't function properly under the current proposed rules of no more than 33% in 24hrs, or whatever it is, because they move too fast.

I'd like to talk about options contracts as well, as they would suffer from the same movements. In addition they have some other problems.  It doesn't seem like they would work, if you have to create a new asset for each contract. Its just too expensive.  Some other front end system would have to offer derivatives of bitAssets I think.  Please correct me if I'm wrong.

Offline bitmeat

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Re: BitSharesX Leveraged Instruments
« Reply #3 on: August 13, 2014, 09:36:35 PM »
Once you provide user scripted assets, we could implement leverages/options/etc. having a smart contract system will be critical for long term success of BTSX. I say this because unless there is development in this area, competition will outrun us. Via coin just announced they have smart contracts up and running. Ethereum is around the corner.

Offline Xeldal

Re: BitSharesX Leveraged Instruments
« Reply #4 on: August 14, 2014, 02:39:28 AM »
Someone has to extend the credit and take the risk of default.   To take $300 worth of value to short $100K worth of USD is only possible with low volatility.

I see what your saying.  A margin account. Where a 3rd party could offer credit/leverage via their service,whatever it is, that interfaces with BitSharesX.  Just like brokers do now with forex.  That makes sense. But we're still left with an upper limit of how much leverage functions inside the platform.  Which is fine.  Forex standard trades in large 100,000 unit blocks. I think a primary reason we see 400:1 is, in an effort to reach a wider base of smaller users, and to take their money of course, with margin calls.  BitSharesX doesn't have to deal with that.


Quote
To trade $100,000 of currency, with a margin of 1%, an investor will only have to deposit $1,000 into his or her margin account. The leverage provided on a trade like this is 100:1. Leverage of this size is significantly larger than the 2:1 leverage commonly provided on equities and the 15:1 leverage provided by the futures market. Although 100:1 leverage may seem extremely risky, the risk is significantly less when you consider that currency prices usually change by less than 1% during intraday trading.If currencies fluctuated as much as equities, brokers would not be able to provide as much leverage.
http://www.investopedia.com/ask/answers/06/forexleverage.asp

So these 3rd party brokers could offer the extended leverage that's not really suitable for the platform but still honor it somehow as a front-end service.  Where they essentially take option 1 from your orginal FDIC for bitUSD, but off blockchain. So the broker takes the risk of dealing with insolvency not BitSharesX.
https://bitsharestalk.org/index.php?topic=6867.msg91028#msg91028

I suppose options could then be handled in the same way, off-BitSharesX-blockchain, smart-contract, etc.

Offline tonyk

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Re: BitSharesX Leveraged Instruments
« Reply #5 on: August 14, 2014, 02:47:26 AM »
Someone has to extend the credit and take the risk of default.   To take $300 worth of value to short $100K worth of USD is only possible with low volatility.

I see what your saying.  A margin account. Where a 3rd party could offer credit/leverage via their service,whatever it is, that interfaces with BitSharesX.  Just like brokers do now with forex.  That makes sense. But we're still left with an upper limit of how much leverage functions inside the platform.  Which is fine.  Forex standard trades in large 100,000 unit blocks. I think a primary reason we see 400:1 is, in an effort to reach a wider base of smaller users, and to take their money of course, with margin calls.  BitSharesX doesn't have to deal with that.


Quote
To trade $100,000 of currency, with a margin of 1%, an investor will only have to deposit $1,000 into his or her margin account. The leverage provided on a trade like this is 100:1. Leverage of this size is significantly larger than the 2:1 leverage commonly provided on equities and the 15:1 leverage provided by the futures market. Although 100:1 leverage may seem extremely risky, the risk is significantly less when you consider that currency prices usually change by less than 1% during intraday trading.If currencies fluctuated as much as equities, brokers would not be able to provide as much leverage.
http://www.investopedia.com/ask/answers/06/forexleverage.asp

So these 3rd party brokers could offer the extended leverage that's not really suitable for the platform but still honor it somehow as a front-end service.  Where they essentially take option 1 from your orginal FDIC for bitUSD, but off blockchain. So the broker takes the risk of dealing with insolvency not BitSharesX.
https://bitsharestalk.org/index.php?topic=6867.msg91028#msg91028

I suppose options could then be handled in the same way, off-BitSharesX-blockchain, smart-contract, etc.

Actually the credit should be inside the platform, imo.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Xeldal

Re: BitSharesX Leveraged Instruments
« Reply #6 on: August 14, 2014, 02:44:25 PM »

Actually the credit should be inside the platform, imo.

That would be ideal.  Just suggesting that it wouldn't have to be, if for some reason it's not available/functional/possible.

Offline logart

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Re: BitSharesX Leveraged Instruments
« Reply #7 on: April 12, 2017, 06:04:06 AM »
This thread is old but the author of this thread is right, traders need leverage to make profits, if you want mass adoption in the DEX you'll need to attract clients. Offering them liquidity and leverage are two things that bitshares lack of.

Offline valtr

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Re: BitSharesX Leveraged Instruments
« Reply #8 on: April 12, 2017, 06:19:06 AM »
This thread is old but the author of this thread is right, traders need leverage to make profits, if you want mass adoption in the DEX you'll need to attract clients. Offering them liquidity and leverage are two things that bitshares lack of.
IMO the problem is that if you loose money with a broker account, you will have to pay. If the leverage is an BitShares algorithm,  the failure will be at expense of BitShares.

Offline paliboy

Re: BitSharesX Leveraged Instruments
« Reply #9 on: April 12, 2017, 06:30:47 AM »
This thread is old but the author of this thread is right, traders need leverage to make profits, if you want mass adoption in the DEX you'll need to attract clients. Offering them liquidity and leverage are two things that bitshares lack of.
IMO the problem is that if you loose money with a broker account, you will have to pay. If the leverage is an BitShares algorithm,  the failure will be at expense of BitShares.

You are right but, if done correctly, there shouldn't be many defaults. Could the reserve pool serve as an insurance for these defaults? There is a part of Deribit's newsletter from 27 March:

Quote
Insurance Fund reduction to 25BTC

Because of the changes we expect to see less bankruptcies. Therefor we decided the insurance fund will be reduced 25 BTC. In case the insurance fund will be depleted, we will replenish the fund with an amount to be decided in the future.

Currently there are various traders with positions in Options that expire in June. For any positions in June Options created before the 31th of March, we will keep an additional 75 BTC of insurance reserved, as most of those positions got opened assuming a 100 BTC insurance fund.

We will always strive for not having to socialize any losses. During the 8 months that Deribit has been operating, we never have socialized any losses among our users. Deribit had only 4 BTC worth of bankruptcies sofar, that got assumed by our insurance fund. With a lower insurance fund of 25 BTC, Deribit will still be motivated to manage the risk on the platform in such way that traders will not go bankrupt.

Offline yvv

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Re: BitSharesX Leveraged Instruments
« Reply #10 on: April 12, 2017, 12:55:37 PM »
Leverage is exactly what shorters need, and the right way to give them leverage is to make MCR low. Markets in bitshares are too shallow to give the same leverage as forex does, this is too risky, but as BTS markets get deeper, we need to reduce MCR gradually from initial high value. We need to offer shorters at least as high leverage as poloniex offers for most popular bitAssets.

Offline logart

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Re: BitSharesX Leveraged Instruments
« Reply #11 on: April 12, 2017, 03:32:34 PM »
This thread is old but the author of this thread is right, traders need leverage to make profits, if you want mass adoption in the DEX you'll need to attract clients. Offering them liquidity and leverage are two things that bitshares lack of.
IMO the problem is that if you loose money with a broker account, you will have to pay. If the leverage is an BitShares algorithm,  the failure will be at expense of BitShares.

You can code a negative balance protection that will automatically stop the user out when he is losing 80% of his account. Also, you can disallow clients to leave positions opened on weekends in forex and commodities. Crypto is 24/7 market so you don't need that. Forex and commodities are 24/5 markets. Also we have a reserve pool.


Offline valtr

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Re: BitSharesX Leveraged Instruments
« Reply #12 on: April 12, 2017, 07:27:04 PM »
This thread is old but the author of this thread is right, traders need leverage to make profits, if you want mass adoption in the DEX you'll need to attract clients. Offering them liquidity and leverage are two things that bitshares lack of.
IMO the problem is that if you loose money with a broker account, you will have to pay. If the leverage is an BitShares algorithm,  the failure will be at expense of BitShares.

You can code a negative balance protection that will automatically stop the user out when he is losing 80% of his account. Also, you can disallow clients to leave positions opened on weekends in forex and commodities. Crypto is 24/7 market so you don't need that. Forex and commodities are 24/5 markets. Also we have a reserve pool.
Disallow clients to leave positions opened on weekends in forex and commodities is a very good point. I remember well the gaps after weekend.
Regarding the stop out at 80% of an account value it may not work at any circumstances. Just remember trading Swiss franc after the announcement of Swiss central bank.
It was very near to a black swan event I admit, but such thing may arise easily every year. USD, oil, gold any other fiat (also crypto off course )may come with a lightening speed change and let accounts ruined.
Maybe trading fees can earn enough to cover it??? I do non know.
ANYWAY leveraged account would be a big invitation for traders.   
« Last Edit: April 12, 2017, 07:38:00 PM by valtr »

 

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