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I'm pleased to announce new changes.
Awesome, I'm glad that the quantity scales with volatility and time exposure. As to the percentage price changes - I think eventually a market-based approach would be best (that's how it works "in the real world" for the most widely-traded products). Basically we can sit here and say "a 15% price move in a week is reasonable", but until we get our hands into the data, we are really just talking. If we use arbitrary numbers to determine what we think is reasonable, we're bound to get blown out of the water or leave money on the table.
Here's what I would do:
-Calculate the historic volatility for the term of your contract and used a distribution based approach to determine what is reasonable
Here's how to tangibly do this for a 1-week contract:
-Pull the historic price change every week since the inception of BTC
-Get a table with the weekly percent changes in price since BTC began to be traded
-Take the average of the weekly price changes and the standard devation
-Add the average by 2 x the standard deviation of all of the price changes
-Whatever this number is represents the percent change to apply to a weekly contract
-This number that you get means that 95% of the time, the weekly price change will be less than this and it is a good number to use for your contract...or the flip-side: every 20 weeks, a price change will happen that is greater than this
-You need to repeat the above steps for whatever the term of the contract you are offering will be (aka for two months into the future, you need to pull prices for every two months and repeat the steps)
This is a lot of work, but it will get you a seriously mean product that is more robust. It can also save you some money - what if the reasonable weekly price move is around 5%? You're cutting your customer's capital - vital capital that could be employed in trading and generating you more commissions.
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About your comment to FreeMoney regarding the commission - this is why you need a percentage-based commission (just like Mt. Gox). Do you think Mt. Gox would get the same trading volume if they charged every trade a $4.95 commission? You stated that you are basing this model off of Zecco - a retail stock brokerage. Here's the reason they only offer 100 share options - anything smaller represents an odd-lot transaction in the stock market. Bitcoin doesn't have these restrictions. The most logical granularity for contracts at this moment is 1 BTC.