Long BTC short CME BTC futures trade, what are the risks?
- Thread starter Daal
- Start date
Good question. The better exchanges are multi-located and have chosen exceedingly friendly jurisdictions, such as
Deribit recently moved locations from the Netherlands because of an unfriendly jurisdiction to a better one, for example. They're not fixed in location and the governments pass laws before they take effect, so legit exchanges warn you. I've had several such warnings. You can then remove your coins in a matter of minutes.
Deribit recently moved locations from the Netherlands because of an unfriendly jurisdiction to a better one, for example. They're not fixed in location and the governments pass laws before they take effect, so legit exchanges warn you. I've had several such warnings. You can then remove your coins in a matter of minutes.
As I said, you have to dive into it and really learn what's going on and which risks you are taking. The carry trade has the return profile of a junk bond and depending on your due diligence and exchange selection you either cash in or lose your margin.
When a country bans trading a market you usually have a certain amount of time to sort things out. They won't freeze your account and hold you hostage.
But you should not be doing this IMO. By the questions you're asking my best guess would be that you're 1 year behind in terms of knowledge.
Here is an interesting part of the Kraken Futures (which apparently is a Singapore subsidiary of Kraken US) Disclaimer
"We are not regulated by any regulatory authority, whether in Singapore or otherwise. Accordingly, the deposits in your Account will not be considered “Customer’s Moneys” or “Customer’s Assets” under the Singapore Securities and Futures Act and the accompanying subsidiary legislation, nor will they be protected by other client money or clients assets regimes. This means that, in the event of our insolvency, you will rank as an unsecured creditor of ours. In the event of our insolvency, any cryptocurrency or fiat currency that you have deposited in, or which is credited to, your Account may not be immediately available."
lol
"We are not regulated by any regulatory authority, whether in Singapore or otherwise. Accordingly, the deposits in your Account will not be considered “Customer’s Moneys” or “Customer’s Assets” under the Singapore Securities and Futures Act and the accompanying subsidiary legislation, nor will they be protected by other client money or clients assets regimes. This means that, in the event of our insolvency, you will rank as an unsecured creditor of ours. In the event of our insolvency, any cryptocurrency or fiat currency that you have deposited in, or which is credited to, your Account may not be immediately available."
lol
Since these exchanges are unregulated, they dont have to keep any kind of minimum capital. As a result they can just treat their customers assets as the capital. Which is exactly what Kraken is doing by opening another company and treating their customers assets as unsecured creditors in a BK.
Sure, one can get away by only keeping 10-20% of their contract value as margin in the broker and then adding as the market rips but that sounds like an annoying job to me. Monitoring this margin requirements and making transfers constantly. All of that to pick up 10%, which is not even that given the risks involved. Also, having a short on paired with longs AND long-term longs (hodl coins) is mentally confusing as hell, and it will probably hurt my ability to time this market. So, no thanks
I rather do something else which I think its smarter. I will monitor this futures markets and when the market is about to peak like in 2017, I bet this basis will be ridiculous. Heck, maybe its happening right now, who knows. But when the time comes that I think the top is in, I will short the next month futures. Pick up another 10-20% when the spread comes in and then cashout and wait for the bottom (and liquidate my coins for fiat). Much better than doing daily work to make a few bucks and then fucking up the timing (where the real money will be made)
Sure, one can get away by only keeping 10-20% of their contract value as margin in the broker and then adding as the market rips but that sounds like an annoying job to me. Monitoring this margin requirements and making transfers constantly. All of that to pick up 10%, which is not even that given the risks involved. Also, having a short on paired with longs AND long-term longs (hodl coins) is mentally confusing as hell, and it will probably hurt my ability to time this market. So, no thanks
I rather do something else which I think its smarter. I will monitor this futures markets and when the market is about to peak like in 2017, I bet this basis will be ridiculous. Heck, maybe its happening right now, who knows. But when the time comes that I think the top is in, I will short the next month futures. Pick up another 10-20% when the spread comes in and then cashout and wait for the bottom (and liquidate my coins for fiat). Much better than doing daily work to make a few bucks and then fucking up the timing (where the real money will be made)
Hmm - reminds me of this:
"the Bank of Cyprus, was forced to seize deposits from savers in a bid to stay afloat"
There was another Euro-bank (Spanish, I think?) that force converted deposits to bank shares at way above market rates.
In other words - the same risks apply to banks.
MF Global was a top-tier firm. Madoff? Enron.
These same arguments apply to regulated entities.
Yeah if it can happen to banks that have to obey capital rules and lend against houses (usually), imagine an online casino with no capital requirements where people do highly levered bets in a super volatile asset. The risks are even greater. If US stocks can flash crash and see stocks of multinational corporations trade at 1 cent, I'd say that crypto can do the same and these exchanges will make the winners pay for the losers.
But that's not even the main reason I'd avoid it. I used to day and swing trade short a lot of small caps. Sometimes my timing would be off and I still wouldn't cover because I thought that if I did, I would lose my borrow (some small caps are really hard to borrow). So I would long it in another account as a hedge. Having a long and a short is so mentally confusing, it goes against what you want to do as a trader. When the stock went down I would think 'moron, why did you long in the other account?' when it went up I would think 'I knew it would squeeze, I should have been net long'. It would induce all kinds of trading mistakes and it could cost me money and sanity. I know other pretty good traders (some 7 figure traders) that said similar things. If I run this trade I know its going to make me mess up my timing on my long-term coins, which would cost me multiples of any little gain this might produce. Even if I separate them, one pair trade and one long-term trade, I still think it will affect me, especially given that I will have to look at the futures leg constantly and feed it with more money
But if someone else can dodge all these mental issues, can choose the correct right broker, the market does not flash crash and they avoid all the margin calls on time. Then yeah, you deserve that 10%
But that's not even the main reason I'd avoid it. I used to day and swing trade short a lot of small caps. Sometimes my timing would be off and I still wouldn't cover because I thought that if I did, I would lose my borrow (some small caps are really hard to borrow). So I would long it in another account as a hedge. Having a long and a short is so mentally confusing, it goes against what you want to do as a trader. When the stock went down I would think 'moron, why did you long in the other account?' when it went up I would think 'I knew it would squeeze, I should have been net long'. It would induce all kinds of trading mistakes and it could cost me money and sanity. I know other pretty good traders (some 7 figure traders) that said similar things. If I run this trade I know its going to make me mess up my timing on my long-term coins, which would cost me multiples of any little gain this might produce. Even if I separate them, one pair trade and one long-term trade, I still think it will affect me, especially given that I will have to look at the futures leg constantly and feed it with more money
But if someone else can dodge all these mental issues, can choose the correct right broker, the market does not flash crash and they avoid all the margin calls on time. Then yeah, you deserve that 10%
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No it's a pair. You have to close it as a whole. Don't do this with HODL positions, HODL is HODL. It will mess up your cost basis otherwise.
My last 2 cents here: You need to understand reputational risk in regards to the current state of the industry. That will allow you to determine which exchanges are reliable.
Also, I was not getting 10% returns on cash. More like 50%.
Were you longing the perps, or how do you get the leverage on spot price?