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- TIMESTAMPS -
0:00 Intro
1:40 What is Leveraged Trading?
3:10 History of Futures
5:20 Intro into BTC Futures
7:10 Bitcoin Futures Today
9:10 Do's & Dont's
13:00 How Exchanges Make Money
15:34 Using Leverage Responsibly
17:44 Conclusion
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โ๏ธ ๐ Helpful Links & Sources ๐ โ๏ธ
โบ Bankruptcy vs. Liquidation: https://hackernoon.com/why-you-shoud-never-trade-100x-at-bitmex-the-liquidation-price-vs-bankruptcy-price-606ccd4b7528
โบ User Rekt on BitMEX: https://www.reddit.com/r/BitcoinMarkets/comments/7s8umm/how_i_lost_nearly_200_btc_trading_this_past_month/
โบ Using Futures to Hedge: https://www.investopedia.com/ask/answers/06/futureshedge.asp
โบ Mass Liquidations: https://cointelegraph.com/news/btc-held-by-bitmex-fell-25-after-mass-liquidations
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๐ค What is Leveraged Trading? ๐ค
It is trading with more money than you have. To expand on that a bit more, it is entering positions on the market that are many multiples of what you are putting down as collateral.
This collateral is more commonly called your "margin" and it is usually measured as a percentage of the amount that you can trade with. Gains and losses are magnified by said factor.
๐ History of Futures ๐
They were initially used centuries ago as a method for farmers to hedge the risk out of foreward prices for commodities. They would sell their product into the future in order to secure a price for it when it came to market.
Futures markets eventually rolled out to the currency markets in the early 1970s, interest rate markets in 1975 and stock indexes in the 1980s. Eventually, by the 2000's you had futures instruments on single stocks as well.
These did make their way into the retail markets through the numerous online brokerage accounts offered to US traders.
โฟ Futures in Bitcoin โฟ
One of the first exchanges to offer Leveraged Bitcoin trading through futures was of BitMEX. Registered in the Seychelles and run out of Hong Kong, this was one of the predominant Bitcoin futures exchanges for a number of years.
They gave Bitcoin traders the opportunity to trade their perpetual futures instruments of up to 100 times.
๐ฅ Current Shape of Market ๐ฅ
There is a lot more compeition from leveraged exchanges now. Something else also happened back in 2017. The CME and CBOE both released their own regulated and exchange listed Bitcoin futures. Demand for these products has steadily been increasing over the past 3 years.
This was mainly driven by a surge in institutional interest in Bitcoin futures. So much so that other providers like Bakkt also listed their own physically settled Bitcoin futures
๐ธ How Exchnages Make Money ๐ธ
An exchange is just a centralised trading engine that matches buyers and sellers of futures contracts. They will charge commission on all of the trades that they match.
Apart from facilitating the exchange, they also make sure that the trading pool is kept solvent. They have to make sure that in the event of extreme market moves, those that are close to depleting their margin will have their position closed. This is to protect what is called "bankruptcy" in the position.
In order to do this, the exchanges will operate a liquidation engine. These are designed to execute trades and de-risk a position. Every time that they do this they will earn commission on the trades that are met and executions that are done.
They also operate what is called an "insurance pool". These are funded by trader's margin and are used in order to reduce risk to the trading pool and prevent socialised losses.
โ
Using Leveraged Responsibly โ
You should consider if you even want to do it. Have you traded in the spot market before and have you developed a trading strategy? This could be a fundamental one based on price action or a more technical one that is shaped by the charts. Do you have a money management strategy?
This should be viewed as a completely separate component from your Hodl portfolio. It should also be funds that you should comfortably be able to lose without breaking the bank. You should then decide on what exchange you want to trade on
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๐ Disclaimer ๐
The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial legal or tax advice. The content of this video is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. Trading Forex, cryptocurrencies and CFDs poses considerable risk of loss. The speaker does not guarantee any particular outcome.
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