Chase the Bitcoin index liquidity – The wizard pleb
Today we are going to explore what is the fair price you experience trading the most liquid product int the crypto space.
We consider liquid instruments with a 0.5$ ticker and a daily volume of 100 000 000$.
That why I’m going to study the main trending derivatives market and the favorite product of any traders, the BTC Perpetual swap.
They all have different policies regarding their instrument and provide leverage, a funding mechanism allow the leverage to take place. If any traders took leverage and can’t afford to pay the loss…
Be your own bank they said.
Well you could cry, you could blame the manipulation of whales, you could sue Bitfinex for 1,4 Trillions, no don’t do that, please.
You have used the most advanced tools to avoid this kind of event.
You can’t get liquidate they said, but here you are reading this article, so what really happened.
The mechanism to liquidate a position is always the same we ask you to keep a margin maintenance up to 0.5% of the FULL position and same principles to execute the taker fees 0.0750% (market order).
Multiply this by your leverage and this represent how much money they will end to the “insurance fund” to cover potential winner in high volatility event
Exemple:
Bill, Roger, Anna long with a x5 x25 x100 leverage
Bill have 2.5% of his account is in maintenance + 0.375 % pre-allocated to liquidated him if needed.
Roger 12.5% of his account is locked up +1.875 taker fees%
Anna: 57.5% of her account is literally held in hostage right now.
The remaining percentage is available for the position itself as collateral and will be used to pay potential losses, if you think leverage x100 give you 1% max loss, it’s wrong, why your liquidation price is NEVER the same as the one with the liquidation formula itself it’s because of this maintenance margin and the liquidation fee and the.
How to calculate losses ?
All profits and losses are based on the last price and current orderbook depth of the platform you are trading, if you have a position superior to the first available price you experience a slippage but that’s another topic.
How traders prices these derivatives ?
They watch the underlying index composed of the main spot exchanges:
Index is the reference price, for billions of volumes traded every single day. These exchanges trade Bitcoin per day on average for BTC/fiat.
Kraken: 10 000 BTC
Gdax: 12 000 BTC
Bitstamp: 12 000 BTC
Gemini: 1100 BTC
Itbit: 850 BTC
How good is liquidity on indexes ?
Daily there is a 35–40k BTC turnover, a reasonable way to study the potential impact on the market of any traders would be to apply Pareto rules 80-20 for wealth distribution, 80% of the daily result price is made by 20% of the traders.
To have a significant impact 300 BTC is enough to move the price 1% on any of these exchange reference index.
What is the impact on volatility ?
The graph is the volatility every day since creation of the first Bitcoin derivative exchange. The minimum daily volatility is 0.40 %
Interesting fact if you are leverage x100 and 57.5% of your account is locked up you can only have a 0.425% volatility and from the graph provided above
Only one day x100 leverage have survived a period of 24h since 2016.
It was the 18 December 2016
One year later day for day the 18 December 2017 was the top of Bitcoin.
What would be a fair deal ?
- A maintenance margin lower for small account down to 0.2% maintenance or cover with the insurance when money is available.
- A maximum leverage lowered to x4
Professional are coming.
Published at Thu, 14 Nov 2019 13:32:44 +0000
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