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Trading Crypto


Freddy
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I never thought I would say those two words but anyways. I had it on my todo list to broaden my horizons and research everything from Black-Scholes, trading systems for gold/silver/oil/crypto. Lockdown and pretending to WFH has given me this opportunity. I like the trading (risk/profitability) profile of crypto, and I am not talking in the HODL sense, I am a short-term (1-7 days) swing trader.

A couple Qs. I notice the real crypto prices, as in what gets posted on the ledger, is a lot more profitable than the derivatives being offered by market makers. However, the costs of trading the real thing seems prohibitive. So my questions are:

1) What is the cheapest way to buy and sell the real (virtual) thing?

2) What is the slippage like on the real thing or derivatives.

Maybe one day I will post an article on what I mean by the trading profile. Like my previous posts, it is more along the theme of volatility and risk management.

 

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Peachy
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Posted by: @freddy

However, the costs of trading the real thing seems prohibitive. So my questions are:

Why do you say that, mate? The commissions on the big global exchanges are quite low. 

What is the cheapest way to buy and sell the real (virtual) thing?

on an EZFKA exchange the rates are <0.5% once you get into any sensible volumes:

https://www.btcmarkets.net/fees
https://www.independentreserve.com/au/help/fees#trade-volume-discount

On reputable foreign exchanges it’s half that:

https://www.bitstamp.net/fee-schedule/

I’m assuming that you want to trade the mainstream coins.

for less-mainstream coins, you’d need to look at other exchanges…

Posted by: @freddy

2) What is the slippage like on the real thing or derivatives.

Nfi on this.  Again probably depends on the asset.

But for btc and eth the markets are plenty deep and liquid (despite what Stewie will tell ya!) for normal punters who are looking at $50k-$100k-$200k type trades  

https://www.bitstamp.net/market/tradeview/

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Freddy
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@peachy 

 

The kind of trading I am planning is 0.5%-1% profit per trade. Factor in fees (x2 for buy/sell) plus slippage and you understand the dilemma. Also, from what I can tell the "lower cost" operators like Binance (0.1% fees x 2 for buy/sell) don't actually sell you the underlying asset (and the corresponding price). They are in effect another market maker with a fake price that occasionally buy the real thing to hedge themselves. That is why you see the occasional flash crash only on their system.

Compare those fees to the CFD market makers that charge as low as 30 pips for bitcoin (30/60000 = 0.05%), but then try to r*pe you on overnight funding costs which doesn't bother so much as I am very short term trader.

 

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Stewie
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Hi Freddy,

I should stress that if you are interested in Trading Crypto then you should probably pay more attention to Peachy or Biased World (not sure what he is on EZFKA). My interest in Crypto has been more in respect of the technical capabilities rather than price... perhaps rather foolishly in hindsight I assumed that price would follow utility and technical accomplishment, forgetting that Crypto is one of the most manipulated markets in the world. From a trading perspective you are FAR better off running with the herd in crypto (well until they all fall off the cliff at the end).

In terms of Trading, when I am looking to put on a small trade I pretty much exclusively use TDXP nowadays. This is a non-custodial CFD provider - meaning that you place your bets on whatever asset Crypto, Commodities, Stocks, Index, FX, etc and the crypto is taken from your wallet and staked for the duration of your trade, where upon completion it is returned to you plus/minus any gain or loss. You don't actually take physical possession of any of the things you are trading:

https://tdxp.app/market/BSV-BTC

I like this because you have practically zero credit risk - you aren't leaving your funds on some dodgy unregulated crypto exchange like Binance or FTX.

Downside is that this exchange is a BSV based exchange, meaning you would need to purchase some BSV, move it to your wallet and then set up an account with TDXP to trade. The other downside is that currently all the transaction pay out in the USD equivalent of BSV at the time the trade completes - meaning you are exposed to BSV price risk. This has not been a huge issue as BSV is virtually a stable coin at the moment with its price having gone nowhere.

I should mention that I'm now a shareholder in the TDXP holding Company so my opinion here is not unbias, still I think it is a great Co and the functionality to receive or trade in actual base fiat currency USD, EUR, etc is coming to the platform through liquidity staked stable coins:

https://faq.tdxp.app/liquidity-backed-stablecoin-proposal

The average transaction fee for a trade us less than a cent, however there are funding or holding fees for holding a position.... crypto is 19.58% annually (0.0537% daily), FX is 5.42% annually (0.0148% daily) while the remaining are 10.89% (or 0.0298% daily).

In terms of actual crypto exchanges, my main is Bittrex and my alt is BTCMarkets. Mainly because both support BSV - I only use these nowadays when I want to either cash out to fiat or buy some BSV to stack.

Regards

Stewie

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Freddy
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@stewie 

 

Thanks. I will look into TDXP. I already hold a small amount of BSV so the opportunity cost of holding BSV is not a problem. 

 

 

 

 

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Stewie
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@freddy If you already hold BSV open an account. There is some minimal KYC, send passport photo + drivers license stuff, but nothing you probably wouldn't already have on hand or copied to a file somewhere. 

If you already have the BSV exposure you may as well check it out. In order to use it you need to have either a Handcash, Dotwallet, RelayX or Moneybutton wallet... I think Volt wallet is going to be added too shortly.

Of the wallets I would probably rate Volt the best, it has the complete suite of functions you need and well laid out, but as I said - it is yet to be integrated to TDXP. Following that I would would choose any of the remainder apart from RelayX, which doesn't provide any transaction records.

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Freddy
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@stewie 

I have a quick look at TDXP. They are comparable to the other CFD providers I mentioned: Bitcoin Trading | Buy and Sell Bitcoin (BTC) | City Index Australia

 

TDXP has a 20 point spread for BTC, and a funding rate of 19.68% for long, and 0% for short. It is competitive (for short-term Long positions at least) so I can see the appeal. For Short positions or longer term trades there are more competitive options without the hassle of holding BSV. Also not sure what happens with negative balances. Do they deduct more money from your account? With the ASIC regulated providers you have negative balance protections. IG Markets also has guaranteed stop losses but their spreads are huge.

 

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Stewie
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@freddy Not sure what you mean by negative balances - you stonk up a margin and they close you out when you hit your stop or blow through it. Your initial margin is returned to you when you close your trade, while the profit is paid out of the liquidity pool at the end of each liquidity session, i.e. every 8 hours.

This is an AMM provider, so there are a few other quirks to it as well, which limits the size of the bets you can put on in some markets and result in amortised gains, but it is good enough for my needs - I'm more a punter than a scalper.

Having lost some funds once when a CDF provider went under, and always attune to the risks of holding funds on exchange, I like the business model of smart contracts and AMMs and the zero credit risk it presents - especially in this space. It is a newish sort of business model and I thought it very interested to get on board. It would be nice if the price of BSV went up which would increase the capitalisation of the liquidity pool and allow larger bets, but even at these levels the liquidity pool is paying a reasonable return, considering they are doing everything by the book and trying to build a fully ALM/KYC DEX from scratch.

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Freddy
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@stewie 

 

From their FAQ. All-in-one Explainer - FAQ (tdxp.app).

 

How does a trade work (with leverage)?

‘Liquidation Price’. This is the price at which the position would be closed automatically by TDXP.

 

This is fair enough and most CFD providers will do the same. 

 

Market making?
Many CFD brokers, including TDXP, are market makers. This means they are the counterparty for all trades on their platform. The alternative is Direct Market Access (DMA) CFD brokers. When you trade through a DMA CFD broker, your trade executes on real-world markets (buying or selling real assets)

 

Not happy with that comment. Genuine market makers can't help themselves with pricing shenanigans to increase their profits, or outright steal your money with false volatility to take out stop losses.

The DMA comment is a lie. It is not binary market maker or DMA. Most reputable CFD providers will match long with shorts, and any major imbalances hedged against the underlying market. They don't bet against you.

 

Who loses when I win (and vice versa)?
TDXP is the counterparty for all trades. If you win on a trade, TDXP pays you. If you lose on a trade, you pay TDXP.

Hold that thought...

 

What if session liquidity goes negative?
When there are many winners and few losers, session liquidity can go negative.
If a trading session closes with negative session liquidity, ‘socialised profit deduction’ occurs. Realised gains are proportionally reduced such that session liquidity is zero. The reduced profits are then paid out.
Liquidity crunches such as I’ve described are the reason that gains are not paid out immediately. Realised gains of trades are always held until the end of a trading session. This is protection in case a socialised profit deduction needs to occur. When socialised profit deduction occurs, profit that is withheld stakes into the 28th funding round of the insurance pool. This allows for profit recovery. After the first 27 rounds are repaid, you begin to receive your proportional share of 3% of trading losses. This continues until your deducted profit is repaid, along with 28% interest. 

 

I interpret that to say they are very happy to be the counterparty when they are making money, not so happy to be the counterparty when they are losing money. Sure, if you are on the wrong side of a bad trade they are not going to send the heavies over to get you to cough up more money.

But what happens if you have winning trades on in an event that sends them into deep negative liquidity? It sounds like you are not getting paid anytime soon. They are not going to cough up any of their existing profits. Your winnings will only ever be paid out of future profits... if there is a future profit.

 

 

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Stewie
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@freddy The price feeds are from various brokers, so if there are price shennanigans on other exchanges then they will flow through to TDXP. That said I'm on the Telegram chat and have witnessed examples of people questioning prices, especially outliers, and TDXP rectifying when there is a problem.

They are an AMM so there is no matching other than against the pool, that is why there are limits in terms of positioning - they don't pass risk off to other exchanges. All trading occurs on the BSV chain via smart contracts against the liquidity pool. Any socialised losses are recovered through the fees paid to the liquidity pool, as the funds become available. This means a daily payment until the held back profit is fully distributed. As TDXP scale and the BSV eco system grows it is envisaged the the rate at which socialised losses can be recovered will increase... well that is the plan anyway.  

In terms of socialized losses, I'm only aware of two occasions so far this year where they have had insufficient liquidity in a session that they have had to tap the insurance fund to distribute to liquidity providers - so I imagine the occurrence of socialized losses is low as they would correspond to the periods when there is insufficient liquidity for providers. I personally haven't had a socialised loss yet in terms of my own trading.... in terms of providing liquidity my daily payouts have ranged from as low as 0.36c to as high as $73.28

As I mentioned the main issue is the current liquidity pool is only around $5m, which means you can't put on particularly large positions - tend to max out at around $10k. The good thing about this is that it also reduces the likelihood of a socialised loss occurring as a result of negative session liquidity.

If you are wanting to be place bets the size of sheep stations, then TDXP is not for you, but for casual retail trades up to $10k it is handy and convenient and cheap. I use it regularly to sate my occasional need to take a punt... on anything - I've even had a pop at Tesla. If you've already got the BSV you are already half way there - check it out for yourself and come to your own decision on what is right for you.

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Stewie
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Oh - the only other thing I will add that I like about TDXP is that it has never gone down during a market correction - provided it still recieves the feeds, it still works.

In contrast ALL the other exchanges regularily have connectivity issues when the market dumps. Because they share liquidity pools, even relatively legitimate exchanges like Bittrex or BTCMarkets tend to go down when the SHTF.

TDXP had 100% uptime during the May sell off.

SBF's exchange FTX went down again just moments ago during the current sell off:

https://twitter.com/CryptoHellspawn/status/1453271299011325958

TDXP won't fuck with you in terms of cutting off your access if you want to close your shorts at the bottom or load up your exposure after a dump.

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Freddy
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@stewie 

 

Crypto too volatile to do sheep station bets. If my system works live I plan to ramp up to a 5% (net worth) max stake which give me around 2.5% risk exposure with a 50% margin. Effectively a 50% stop loss. In comparison, I can get away with a 3% stop loss on the ASX Index.

 

Anyways, I still have a lot of research to do. Assessing Think Markets at the moment which has even tighter spreads. They also have a demo accessible MT4/5 interface with a few years worth of historical data which is handy.

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Stewie
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@freddy Whatever exchange you end up settling for be sure to do some research around traders experience. The most frustrating experience of trading crypto is being on the ball when there is a sell off and then finding that your exchange has gone down for "maintance" right when you want to close your shorts or buy.... you'll also find that they have a tendency to clear their order books during these "maintance" periods, so those deep out of the money buys never seem to get filled, even when the price blows right past them.

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Stewie
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@freddy Came across this interview today of the founder of TDXP where he explains what their goal of the exchange they are building, basically building a provably true and publicly auditable trading platform:

https://twitter.com/CryptoAmerican/status/1453799390410428416

Not particularily long, but touches on a number of other topics too, making it more interesting than just the subject of TDXP alone.

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Freddy
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A random though that popped into my head. Some CFD providers will pay you as much as 10%pa interest for short-selling bitcoin (buyer pays interest, seller receives interest). If you bought the real thing and then hedged (shorted) the same amount with a CFD provider you would be earning a decent interest rate.

Bitcoin Trading | Buy and Sell Bitcoin (BTC) | City Index Australia

Of course there is the counterparty risk if the price drops dramatically.

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Stewie
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@freddy I think Credit Risk is one of the main reasons the futures markets in crypto are always in contago, it is also why I have serious doubts about any BTC ETF built around futures. Institutions would be all over the arb here, but the great unknown in crypto is counterparty risk.... ironic when you think about it.

Trolly has a good article on it

http://www.tr0lly.com/bitcoin/bitcoins-overnight-collapse-probability-is-about-50/

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Peachy
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Posted by: @freddy

If you bought the real thing and then hedged (shorted) the same amount with a CFD provider you would be earning a decent interest rate.

Bitcoin Trading | Buy and Sell Bitcoin (BTC) | City Index Australia

Of course there is the counterparty risk if the price drops dramatically.

so spell this out for me my short transaction with City Index (say) would be purely synthetic/derivative, right?
 
so I shortsell 1BTC with cityindex and
  1. if BTC gains $20k, I owe cityindex $20k & vice versa
  2. Cityindex pays me 10% on the value of 1BTC

where is the credit/counterparty risk? Is it the risk that cityindex can’t pony up for the drop in BTC price?

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Freddy
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@peachy 

 

The risks would vary:

- Most CFD providers demand 50% margin for crypto. If the price were to drop a lot more than 50% instantly, in combination with the retail protections I mentioned in previous post, the CFD provider would have to cough up the difference for accounts with negative balances.

- They would also be matching long and short positions on their own systems (and pocketing the full spread and funding differences), and then hedging the difference on the futures market which brings us to article Stewie posted.
- The CFD provider could also be overleveraged elsewhere. Read about MF Global.

 

I believe the risks would be lower with a major provider like CMC Markets or IG Markets that have survived the GFC. Still not without risk. 

 

There are other risks as well such as volatility. If price spikes more than 50% they will close your position, which is fine because you are hedged. But if the price reverts before you have a chance to hedge or sell your existing crypto...

 

 

 

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Stewie
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@peachy Been looking into Crypto lending - have an article on the way. Just turned down a job on the basis of what my investigations turned up.
TLDR: Stay the fuck away from Crypto lending.

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Peachy
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Posted by: @freddy

The kind of trading I am planning is 0.5%-1% profit per trade. Factor in fees (x2 for buy/sell) plus slippage and you understand the dilemma.

Yes, with skinny profits like that , you’d need cheap cheap fees!

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Freddy
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@peachy 

Cheap fees indeed. The one Stewie mentioned has a 20 pip spread for BTC which equates to around 0.017%.

 

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Peachy
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I’m thinking about this from a slightly different position. Namely, a starting position where one is already hodling a handful of BTC long term anyway, and so already carrying exposure to the btc price risk. 

 

Posted by: @freddy

There are other risks as well such as volatility. If price spikes more than 50% they will close your position, which is fine because you are hedged. But if the price reverts before you have a chance to hedge or sell your existing crypto...

Presumably something like this can be managed by over-collateralising the account?

although I suppose you pick up more credit risk that way? Or would the cash account be protected if the cfd  provider falls over (at least in theory)?

 

Posted by: @freddy

believe the risks would be lower with a major provider like CMC Markets or IG Markets that have survived the GFC. Still not without risk. 

Certainly lower with one of those (which have large non-crypto business), compared to those whose business is all crypto (binance, etc)

 

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Freddy
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@peachy 

although I suppose you pick up more credit risk that way? Or would the cash account be protected if the cfd  provider falls over (at least in theory)?

 

My understandings is if the CFD provider fails you lose any margins committed to trades. When you have 50% margin on crypto that is a big ouch. The cash account is supposed to be secured but in the case of MF Global they illegally withdrew client money. So yes, you could over-collaterise with theoretical minimal risk unless the CFD provider starts doing illegal shit to try and save themselves.

 

 

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Stewie
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@peachy No - overcollateralisation doesn't work.  The over collateralisation is part of their business model - this is where they earn their income, through rehypothication and lending that collateral to traders. Stay away!!

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Peachy
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Posted by: @stewie

Moneybutton wallet

Lost my credentials to that again. This time for good, I think!

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Stewie
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 🙁 You need to get a Volt or Handcash wallet. They sound more like your cup of tea - you can run them on your phone and you don't need to remember passwords.

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Peachy
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@stewie 

in this context, I don’t think I trust stuff that runs on a phone 😉

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Freddy
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An update on my evaluation of CFD providers. Using my current CFD provider IG markets as the benchmark, for reference their spreads on BTC and ETH are close to the worst (as in 3-4 times worse than the others I have evaluated). I have modelled four other CFD providers using their MT4 provided data, and their listed spreads and swap rates.

IG Markets by far the most profitable despite having the worst spreads. It confirms my suspicions that cheaper CFD providers (or their liquidity providers) are skimming off traders with price manipulation. 

So I am now going the other way and evaluating the more expensive offerings 🙂

 

BTW, IG Markets the only provider I have come across with guaranteed stop losses on Crypto.

 

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Peachy
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Posted by: @freddy

confirms my suspicions that cheaper CFD providers (or their liquidity providers) are skimming off traders with price manipulation.

If IG’s spreads are 3x worse and yet they are far more profitable in your modelling, the term “skimming” is a marvelllous understatement. 

seems more like shafting or raping

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Freddy
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@peachy 

Exactly. Maybe Bitcoin make a fast move up and they temporarily hold the price back 200 pips to shaft all the scalpers. It would probably not affect the longer term traders.

 

 

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Freddy
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I now realise the price discrepancies are an arbitrage opportunity. Scamming the scammers. I like it. My next research task.

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Freddy
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I think I worked it out. It seems to be a liquidity issue. When the price moves fast (usually down but also up) the prices of the CFD providers dislocate from the underlying crypto price. The larger providers like IG either have more liquidity, or possibly fewer short term traders due to wider spreads, and closer match the underlying market during fast movements. Example: there was a mini flash crash on Sep 7. Bitcoin dropped to 43285. The lows at the various providers ranged from 41715-43052 with the highest price being IG. I did find cases where IG dislocated in price as well but in general the others seem to dislocate in price more. 

Now in the process of altering my strategy to EOD rather than chasing the price. The results seems to be more consistent across the CFD providers without much of a compromise on profitability.

 

Also toying with my earlier idea of buying the real crypto so that I don't pay overnight swap rates, and when the system tells me to sell I can hedge or short with one of the CFD providers offering 10% interest.

 

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Peachy
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Posted by: @freddy

think I worked it out. It seems to be a liquidity issue. When

Does that mean that you can’t scam the scammers?

 

Posted by: @freddy

Now in the process of altering my strategy to EOD rather than chasing the price.

Are you going to let us in on the outline of the strategy, the kind of metrics that you’re looking to guide the buys/sells (not the specific levels/triggers, obv 😌 )

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Freddy
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@peachy 

 

It is only a very basic breakout strategy at the moment. Something so simple would not normally work due to so many traders stepping on each other's toes, but crypto seems to have other ideas. Take an SMA or EMA and fiddle around with what could be the support and resistance (SR) range. SR could be a simple percentage range, but with something so volatile a multiple of a standard deviation (something like Bollinger Bands) will yield better results longer term. If the price goes above that range you have a price breakout. Then you just have to work out the best time to sell, it could be a trailing stop, or if it falls back into the SR range, or breaks out to the underside. Once you figure that out you then get to my current point of understanding that CFD providers don't match the underlying price, and that you will get varying results due to false breakouts. I am analysing a few more CFD providers and I will give a more specific example.

Then it becomes all about risk management. Go and re-read my article where I talk about MAR ratio. When you do the calcs you will realise you could lose more than 50% in a trade and that maybe you shouldn't have much more than a few percent of your equity tied up in this trade, and only use an ASIC-regulated retail account with negative balance protection, or something like what Stewie mentioned.

I will warn you though, this kind of trading means you have to spend about 5 mins a day entering prices into a spreadsheet and working out whether you need to open/close/adjust a trade. You previously mentioned that level of effort was too much 🙂

 

 

 

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Freddy
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Here is my test data of two recent flash crashes.

@stewie, some weird shit going on with TDXP quotes. DYOR on the price dislocation.

 

@Peachy, to answer an earlier question. Most of the CFD providers below have an Metatrader interface. Take one that consistently shoots to the underside like IC Markets and you could absolutely take advantage with an algo that buys the market each time the price dislocates significantly... that is unless they are a bunch of scumbag market makers intentionally lowering the price to take out stop losses and not letting anyone else buy in on the action.

 

7/9 - BTC low of 43285
PLUS500 - 43135
Pepperstone - 43049
IG Markets - 43052
TD365 - 43003
CMC - 43003
City Index - 42966
ThinkMarkets - 42755
IC Markets - 41715
TDXP - 41134

19/5 - BTC low of 30681
TDXP - 34347
City Index - 30066
PLUS500 - 30029
IG Markets - 30027
TD365 - 29914
CMC - 29903
ThinkMarkets - 28755
Pepperstone - 28630
IC Markets - 28281

 

 

 

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Peachy
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Posted by: @freddy

is only a very basic breakout strategy at the moment. Something so simple would not normally work due to so many traders stepping on each other's toes, but crypto seems to have other ideas.

Thanks for that, I understand the broad concept now. 

will warn you though, this kind of trading means you have to spend about 5 mins a day entering prices into a spreadsheet and working out whether you need to open/close/adjust a trade. You previously mentioned that level of effort was too much

yeah, I’m pretty lazy like that. I guess with crypto the advantage is that it runs 24/7, so you’re not having to devote any particular time of day to this activity.

but that 24/7 is also the disadvantage, innit?

The way I see it most of the time, 0.5%-1% per trade is a slow way to eke out the gains, especially when you’re taking smallish positions (to manage risk). But then occasionally I think that grabbing 1% of even $10,000 a couple of times a week is better than a poke on the eye (and worth doing)

….maybe I’ll wait for your more detailed example 😁

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Freddy
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@peachy 

The gains will not be linear. It will be more like lose 1-2%, lose 1-2%, win 5%. You could also cop a pineapple and lose 20%-30% in a single trade which takes many weeks to recover from, or hit the jackpot with a big move in your favour.

There will be other gotchas. Stewie alluded to orders not being filled (order books cleared) during those volatile moments, which is why I have changed my mindset to an EOD system. All systems decay in profitability over time especially ones where idiots like me post details on a public forum. I am only comfortable posting details of this one because it is such a basic system that I expect it to decay over time anyway.

 

 

 

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Peachy
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Posted by: @freddy

am only comfortable posting details of this one because it is such a basic system that I expect it to decay over time anyway.

…and also basically nobody reads ezfka.com forums. 😉

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Freddy
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@stewie,

 

My eternal search for low cost to enable higher frequency strategies led me to this. ▲ 61,405 BTC-PERP (bitfinex.com) It is a BTC derivate (effectively a CFD) offered by Bitfinex. The commission is much lower (0.07%-0.1% round trip vs 0.3% in the underlying market):

  • pretty much guaranteed 24/7 with none of those "maintenance" shenanigans you mentioned
  • The price closely matches the underlying market with good liquidity. You still get the occasional temporary price dislocations when someone dumps a load at market
  • You can also specify how much leverage you want to use, and the overnight funding/swap rates are low at 3-5%pa. If you use this option you need to take note of the price where they start to liquidate your position.

 

 

 

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Stewie
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@freddy Bitfinex credit risk is off the scale.  If you are interested in yield, why not trade the Contango on the US BTC CME futures spread?  I'm sure it will eventually blow up, but you can clear 9% risk free and your only counterparty risk is the CME.

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Peachy
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Hey Freddy, are you around?

 

I’ve been keeping my eye on a peculiarity of the crypto markets which has persisted for some months. 

would you be able to have a look to see if it might be tradeable:

1. In theory

2. In practice, using the back testing machinery which you evidently know how to operate?

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Freddy
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Hi @peachy, I am around.

Shoot and I will look into it. Testability depends on the complexity as I tend to write my own algorithms.

Just a correction above. Bitfinex is not competitive in terms of pricing and liquidity. If you plan to do frequent short term trades then Binance Perpetual Derivates are very cheap (0.04%) to trade with amazing liquidity. FTX the go if you want to trade the real thing

... and yes I am aware of the issues Binance had. It was the less liquid dedicated US exchange rather than the highly liquid international exchange. I also plan to incorporate a secondary price feed into my algorithm so that I can detect bs price collapses.

 

 

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Peachy
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Posted by: @freddy

Shoot and I will look into it. Testability depends on the complexity as I tend to write my own algorithms.

Here’s the thing: for months on end now, the difference in price between BSV and XMR has been very stuck very firmly at USD$100^ [^…this is eyeballing it, maybe the true number is 97 or 104….]

 

there is no reason why there should be a constant margin in nominal dollars… and yet…

https://www.tradingview.com/x/aGh5RReF/

sometimes one of the assets will tear away up or down, blowing out the gap or compressing it. But within a few days the gap will be back to USD100….

Haven’t looked into it closely enough to see whether one asset reliably leads and the other follows…. Or perhaps this doesn’t matter if one constructs a trade purely on the margin widening or narrowing back to USD100 (eg long XMR&short BSV if margin has compressed & vice versa if the margin has blown out)

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Freddy
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@peachy 

 

Easiest way to analyse it is in Excel. You can download the data (as in real tradeable data) using the Bitfinex public API. Sample link:

https://api-pub.bitfinex.com/v2/candles/trade: 4h:tBSVUSD/hist?end=1636009574913&limit=9999 

 

I have attached a spreadsheet so you can see the kind of crude analysis I like to do before deciding whether to dig (a lot) deeper. Observations:

1) Not the first time BSV/XMR cross has traded in a range. If anything previous ranges have been tighter before something breaks out.

2) Something happening since January which makes the Cross look like a trading opportunity.

3) If you go over to tabs 2 and 3 you will see it probably makes more sense to trade the individuals rather than the cross. BSV potentially a good swing trade as breakouts seem to work both long and short.

 

 

 

 

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Freddy
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Excel file too big. I have saved the raw data in csv format instead.

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Peachy
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Posted by: @freddy

3) If you go over to tabs 2 and 3 you will see it probably makes more sense to trade the individuals rather than the cross. BSV potentially a good swing trade as breakouts seem to work both long and short.

Freddy, can you dumb this down for me, as it’s not quite clear (esp considering tabs 2 and 3 aren’t there in the CSV)? Why trade the individual assets rather than the cross (which I infer is the proper term for the price difference between two assets)?

and what exactly do you mean by this? say the cross has gone from the typical $100 to $80… how would you decide which of the two assets to trade (and whether long or short)?

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Freddy
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@peachy 

I am just saying the equity curve looks cleaner trading the individuals. More consistent profit.

and just correcting some incorrect terminology. I am actually looking at a mean reversion rather than break out. BTFD or the reverse of that for shorting.

I have attached a couple images of the equity curves for the individuals (no brokerage or spreads). Scale of 1=100% return.

 

 

 

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Freddy
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xmr equity curve.

 

 

 

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Peachy
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@freddy 

this has only added to my confusion 🙁

When you say “the individuals”, do you mean doing a trade in BOTH the individual assets, as opposed to some derivative product that tracks the cross?  

Or do you mean a trade in ONE of the assets only?

can you do a simple worked example?

Eg now BSV is $195 and XMR is $288: what kind of trade are you thinking of , assuming that i am convinced that the cross will revert to $100 (eg by XMr going to $295 or BSV falling to $188, or some combination)

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Freddy
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@peachy 

Yes, I mean stay away from the cross/derivatives. There is more money to be made trading BSV independently, or XMR independently, or both independently. 

I will be very specific with the details that produced those charts. They are a slight variation of Bollinger Bands: (Bollinger Band® Definition (Technical Analysis) (investopedia.com)

  • In my haste I only used the Close price. You could experiment with the proper formula (High + Low + Close).
  • I used a 14 Day EMA rather than the 20 day SMA. In Excel (assuming prices in column B and EMA in Column G as per that CSV): G1=B1, G2=(B2 + G1 * (14-1))/14
  • A 5-day standard deviation. In Excel it is =STDEV(B1:B5).

 

Long (BTFD): Today's closing price < EMA - 4 x STDEV. Close position when closing price > EMA - 4 x STDEV.

Short (Reverse BTFD): Today's closing price > EMA + 4 x STDEV. Close position when closing price < EMA + 4 x STDEV. 

 

I will also reiterate that despite the 100%+ returns indicated in those charts, that the volatility of crypto is insane and I would not risk much more than 5% of my savings on something like this. I would expect 50+% loss to be a regular occurrence, with many hundred % losses possible on short positions. I would need to do some more analysis on where to put a stop loss.

 

 

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Peachy
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Posted by: @freddy

Long (BTFD): Today's closing price < EMA - 4 x STDEV. Close position when closing price > EMA - 4 x STDEV.

Short (Reverse BTFD): Today's closing price > EMA + 4 x STDEV. Close position when closing price < EMA + 4 x STDEV. 

 

Oooh, I see what you’re doing - buying on significant moves down (4 std dev) & selling the opposite.

For closing the position, are you looking at constantly updated  MA and std dev values (ie recalculated as each day passes), or looking back to the values when the position was opened?

[I was trying to tie what you were saying back to my observation of the cross being in a range, that’s why it wasn’t making any sense - because you’re ere developing a different idea 🤪]

 

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Freddy
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@peachy 

Looking at new values based at current period.

 

Sorry to do this to you. I just realised they are 4 hourly prices, not daily. I had another quick go with daily prices and difficult to find anything that resembles a profitable trading system... at least not with a system like above.

 

 

 

 

 

 

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Peachy
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Posted by: @freddy

just realised they are 4 hourly prices, not daily

😥😥😭😭

that makes it much less practical (for the casual punter)!

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Freddy
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@peachy 

Unfortunately, there are so many people now with access to data that the easy trades are all but gone. I recall listening to a long term trend trader who said his weekly system (trading once a week) worked well for many years until so many people started copying. He switched to an End Of Day trading system which eventually decayed as well, and now switched to intraday (limit/stop orders that buy/sell when desired price level is reached intraday). I think that is where we are at right now. You either buy and hold, or put in at least a small effort to determine entry/exit points once a day and setup those limit/stop orders. I think the latter is what @stewie might be doing?

I expect those intraday strategies to decay over time as well as more people (and algos) step on each other's toes.

 

 

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Stewie
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@freddy Nah - I don't have much of a system. HODL'ing worked best for me, I do some tactical buys when certain pairs hit their lower trading range and then casually sell them when they get sufficiently in the money. Doesn't work all the time but at least it hasn't sent my account with TDXP backwards.

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Freddy
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@stewie peachy should be speaking to you then as to how you determine when to buy and sell.

The more I look into it, the more I am heading towards writing an algo to make 1-2 trades per day. And to answer your other question:

- I won't be using Bitfinex. There is a lot more liquidity at Binance and they are giving away usually expensive historical trade for free (Binance Data Collection)

- Regarding CME Futures . If I was just manually trading Bitcoin then I would consider, but I am looking to do a lot more than that.

- Credit risk a worry with all of them. I intend to start very small and let the software prove itself. Very little outlay if a credit event occurs.

 

Having said that I am still a long way off. I have some promising strategies but still need a lot of research, development, and testing before I give it a serious go.

 

 

 

 

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Freddy
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I was looking into Coinbase Pro since they are the only properly regulated outfit with decent liquidity. It turns out we get the usual Australia tax, and only legally allowed to buy crypto on Coinbase. The only way to sell crypto is to transfer it to another wallet. I am bleeding every step of the way with this project. 

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