Nice explainer: https://www.paradigm.xyz/2021/03/the-cartoon-guide-to-perps
Perps are extremely fun, and not great for your financial health in general. Very addictive PvP game though.
How an obscure OTC-traded derivative from the 80s took over crypto
31–40 of 79 posts
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#32Earlier quoted context omitted.
thanks monero-xmr, but if i wanted to gamble, i'd go to a casino. if i wanted to invest money, i'd buy SPY
Best investment I ever made was in my children. Second was crypto!
Honestly I rarely laugh at HN comments, especially trollish crypto related comments, but I appreciate this contribution, unironically.
Know thyself and all that.
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#33I heard something about the popularity of perpetual futures being owed to "insane leverage possible." Can anyone confirm/explain this?
Yes, BitMEX blew up when they started offering 100x leverage so people could get rich or lose everything on small price movements.
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#34Perpetual futures are so nice compared to regular tradfi ones. Having to roll over your ES or NQ futures serves no purpose (and it's not like any other future besides the front month is liquid anyways) and is probably just a scam by CME to induce more trading volume. That being said regular futures do make sense for stuff like commodities.
Doesn’t that beg the question? Why hasn’t a platform capitalised on the perpetual future in tradfi markets. I can understand why CME might not. But why wouldn’t a new entrant like robinhood launch perpetual futures?
One answer here is that with dated rates products (I.e. all futures and options, not to mention spot ficc) is
* pricing is well understood
* shares similar risks across all products
If you add an ES perp, that might be a fine instrument in isolation, but it behaves totally differently than most other rates instruments so might be hard to fit into a portfolio than dated futures that you roll.
I ran a trading desk in the past that did both dated and perpetual products and this was a major point of focus.
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#35Earlier quoted context omitted.
From OP link: The value of cryptocurrencies, in spite of a collapse in value, is stopped from falling to their natural value, i.e. zero, by a combination of market manipulation, investor ignorance and a tsunami of lies on social media from those paid to promote these worthless frauds. Which isn't how the US government backing the USD works at all.
The US backs it’s currency will a military.
What does this even mean? How about the euro, is that backed by a military?
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#36Izzy Kaminska, one of the smartest crypto critics out there, begrudgingly acknowledged the value of Perps at https://www.bloomberg.com/opinion/articles/2022-08-31/perpet...
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#37Perpetual futures are so nice compared to regular tradfi ones. Having to roll over your ES or NQ futures serves no purpose (and it's not like any other future besides the front month is liquid anyways) and is probably just a scam by CME to induce more trading volume. That being said regular futures do make sense for stuff like commodities.
The oil future prices drop to negative in an exchange in 2020. Funds rolling over the contract in subsequent months also took a big loss for rolling over contracts because price disparity in different months. Perpetual futures would eliminate such risks.
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#38Perpetual futures are so nice compared to regular tradfi ones. Having to roll over your ES or NQ futures serves no purpose (and it's not like any other future besides the front month is liquid anyways) and is probably just a scam by CME to induce more trading volume. That being said regular futures do make sense for stuff like commodities.
Perpetual futures make sense for crypto because it has no physical presence and arguably no real uses beyond speculation. For commodities, for most of which finance and more specifically futures conrracts are really a secondary tool to smoothen the real world use cases, expiry and delivery etc. is a feature and not a bug.
I might have thought that, but the article says they were invented by actual real-world metal miners to solve a problem on the Chinese Gold and Silver Exchange.
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#39Didn’t realize this whole thing was gonna turn out to be an ad.
I mean, pretty much every article about random database performance issues also turns out to be either, at best, an ad to work at the company which ran into the problem, or, at worst, an ad for the company that claims to have solved the problem in a turn-key product :(.
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#40I heard something about the popularity of perpetual futures being owed to "insane leverage possible." Can anyone confirm/explain this?
The way a perpetual future works is that it's basically a bet between two parties on whether the price of Bitcoin will go up or down. Every day, the loser pays the winner by the amount of movement.
But what if the loser doesn't want to pay? The winner is screwed.
To prevent this scenario, but both sides are required to post collateral with the exchange, which gets used to settle the bets. The collateral is required to be a certain percentage of the size of price of Bitcoin. If, due to losing your bet, your collateral dips below the minimum amount required, it is repossessed by the exchange and your bets are terminated.
This is considered leverage because it magnifies the risk of speculating on Bitcoin.
One way to bet on Bitcoin is to simply buy it. If the price of Bitcoin goes from $10,000 to $11,000, that's a 10% reform return.
But if there's an exchange that allows 100x leverage perpetual futures, what they're saying is that I can buy a perpetual future by only posting 1% of the price of the underlying as collateral. So if I buy a perpetual future on Bitcoin while the price is at $10,000 and it goes to $11,000, my return is way higher. I only need to put up $100 for collateral but I just made $1000. That's a 1000% return.
The problem, as you might guess, is that if the price falls, the exchange takes my $100, whereas if I had bought Bitcoin, I'd still own the Bitcoin.
There's also a problem that the exchange can easily blow up if the market moves too fast for them to liquidate the losers and make the winners whole. The greater the amount of leverage the exchange allows, the greater the chance of this happening.