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General Discussion / Shorting Tips and Best Practices
« on: July 09, 2015, 02:11:51 pm »
Since we're getting a lot of chatter wrt shorting bitassets, i figured i'd give my two cents for some best practices. There are plenty of existing threads on the mechanics of how to go about shorting, so i won't go there. Following these steps should reduce some risk with market timing and expired shorts:
1. Consider the overall amount of your BTS you want to include in your shorting activities. A decent rule of thumb is to keep at least 20% of your BTS in reserve to be able to cover subsequent short positions.
2. Consider a time-phased shorting strategy in which you're not using more than 10% of your BTS as collateral for any given trade. Open new short positions every week and cover positions that pass the 3 week threshold.
3. Consider shorting across several bitassets. It's a good idea to rank these candidate assets by liquidity: bitCNY and bitUSD are the two most liquid assets, followed by an order of magnitude less liquidity with bitBTC, bitGOLD, and bitSILVER.
4. Covering can be tricky. My approach is to place BUY orders within the bid-ask spread starting around the 3rd week a position has been open (within 1 week of expiration). This approach gives you a chance of getting a better cover price than the price peg. If a few days pass and your order hasn't executed, then it's best to buy at the highest bid and use the proceeds to cover your near expiration short(s).
-Remember that any interest payments are due when you cover a short, so make sure you factor this into the amount of asset you
you purchase. It can't hurt having a little extra asset in your wallet for future covers, so a good practice is to buy a little more than
needed.
-DO NOT ALLOW YOUR SHORT POSITIONS TO EXPIRE UNCOVERED! This will automatically trigger a margin call with a penalty (5%) and
roll your collateral into the big cover wall, placing your order at the bottom of the queue.
5. COVERING TIP: If you want to roll your position forward for another month and you're in a rather illiquid market, it's possible to buy your own short. What you do is simultaneously input a buy and a sell order for identical amounts and identical prices (somewhere in between the highest bid and the lowest short, so there are no other buyers or sellers at that price). Use the proceeds of the trade to cover your near expiration short and you're left with the same volume net short position as you had prior to this trick, just rolled out another 30 days.
Have fun and remember that by shorting you are helping our business create its core products! Timing markets is almost impossible, but maintaining a consistent strategy that goes long BTS (short bitassets) will pay off handsomely if/when our business gains serious traction.
1. Consider the overall amount of your BTS you want to include in your shorting activities. A decent rule of thumb is to keep at least 20% of your BTS in reserve to be able to cover subsequent short positions.
2. Consider a time-phased shorting strategy in which you're not using more than 10% of your BTS as collateral for any given trade. Open new short positions every week and cover positions that pass the 3 week threshold.
3. Consider shorting across several bitassets. It's a good idea to rank these candidate assets by liquidity: bitCNY and bitUSD are the two most liquid assets, followed by an order of magnitude less liquidity with bitBTC, bitGOLD, and bitSILVER.
4. Covering can be tricky. My approach is to place BUY orders within the bid-ask spread starting around the 3rd week a position has been open (within 1 week of expiration). This approach gives you a chance of getting a better cover price than the price peg. If a few days pass and your order hasn't executed, then it's best to buy at the highest bid and use the proceeds to cover your near expiration short(s).
-Remember that any interest payments are due when you cover a short, so make sure you factor this into the amount of asset you
you purchase. It can't hurt having a little extra asset in your wallet for future covers, so a good practice is to buy a little more than
needed.
-DO NOT ALLOW YOUR SHORT POSITIONS TO EXPIRE UNCOVERED! This will automatically trigger a margin call with a penalty (5%) and
roll your collateral into the big cover wall, placing your order at the bottom of the queue.
5. COVERING TIP: If you want to roll your position forward for another month and you're in a rather illiquid market, it's possible to buy your own short. What you do is simultaneously input a buy and a sell order for identical amounts and identical prices (somewhere in between the highest bid and the lowest short, so there are no other buyers or sellers at that price). Use the proceeds of the trade to cover your near expiration short and you're left with the same volume net short position as you had prior to this trick, just rolled out another 30 days.
Have fun and remember that by shorting you are helping our business create its core products! Timing markets is almost impossible, but maintaining a consistent strategy that goes long BTS (short bitassets) will pay off handsomely if/when our business gains serious traction.
