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Topic: Everything you wanted to know about BTC futures but were afraid to ask! (Read 3941 times)

full member
Activity: 238
Merit: 151
This thread is very helpful to me because as a beginner that I'm it isn't advisable to just rush into trading in bitcoin without knowing the ethics and techniques to be applied in other to be a successful trader so I've really been able to acquire some knowledge in this thread and I look forward for more thread that will be of more clarity to the comprehension of a beginner
full member
Activity: 336
Merit: 195
My post made philipma1957 wear signature
Re: Everything you wanted to know about BTC futures but were afraid to ask!
Very nice thread, I wonder why I haven't seen this thread. It could be because I do not frequent the economics board. But judging from the title of this thread, it ought to be in the bitcoin discussion board. Are there special reasons that the thread is in the economics board?

@Egii Nna, please avoid such method of quoting. It is very horrible to behold.
legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23

Hi @fillippone This topic looks amazing and educational. I would like to be given permission to translate this topic to my local board (Naija local board pidgin) for better understanding of those on my local board.


Negative.
First, you should stop quoting so badly, and maybe learn about basic netiquette and forum rules.
Check here for example:
[GUIDE] Bitcointalk forum etiquette

Second, you are spamming the forum with similar requests, which is not good as there are specific threads for this.
Check here for example:
Help me translate my best posts in your Local Board

Third, as you can see in the above thread, you haven't checked the pidgin translation has already been made:
Check here:
Fourth, you haven't even checked your local board about the thread being translated already.
Check here:
 Re: Nigeria (Naija)


full member
Activity: 252
Merit: 159
Hi @fillippone This topic looks amazing and educational. I would like to be given permission to translate this topic to my local board (Naija local board pidgin) for better understanding of those on my local board.
sr. member
Activity: 826
Merit: 460
<...>
As expert in the futures, what steps would you recommend to new trader in the field of Futures trading.

Trading is difficult.
The first lesson is you never lose: either you gain, or you learn something. Having said that, you should trade only with a sum you are allowed to lose entirely.
Never trade with your life savings, and never think that paper trading (trading with fake money) is a good exercise for the real thing.

So, to sum up, my advice would be: to start slowly, be prepared for economic losses, but have a better understanding of the market.

Exactly, honestly I would also say that trading is not easy and very difficult to conquer. But even though this is difficult does not mean you have to retreat and give up, believe me every problem must have a solution and this is the same as trading, although you may be quite difficult in trading but that does not mean it is impossible for you to achieve some profits there. There is absolutely no reason for you to give up if your conditions are favorable, especially in financial matters.

I really agree with your first point, which is that it is true that they should not waste any time not to learn, because the market is volatile so there will always be changes, therefore we must always improve our knowledge in order to stay balanced with the current market conditions, and well for the budget problem it is very appropriate even though you are very excited about the opportunity for large profits but I say the final result will not always be what you want. Therefore as you said, try to always use money that you will be able to be responsible for whatever the results of your trading, meaning that it will not be a big problem even if you experience losses, and of course indirectly it will be able to keep yourself calm.

Good advice buddy, it never hurts to start slowly and it's never too late for something better. The most important thing is that before you start you should consider everything, starting from the budget you will use and also do research for the plan that you think is best and suitable for your trading journey. Finally, don't always focus on profits, but you also need to think about the level of risk, and with that means you should always consider every decision. Not just profits but losses are obviously there too.
sr. member
Activity: 2198
Merit: 307
Undeads.com - P2E Runner Game
Trading is difficult.
The first lesson is you never lose: either you gain, or you learn something. Having said that, you should trade only with a sum you are allowed to lose entirely.
Never trade with your life savings, and never think that paper trading (trading with fake money) is a good exercise for the real thing.

So, to sum up, my advice would be: to start slowly, be prepared for economic losses, but have a better understanding of the market.
Firstly lesson before start with trading have financial dependent or using free fund for trading capital how to anticipate when getting loss with wrong coins for trading, have bad habit with trader brave deposit their saving fund and  most extra ordinary crazy using an illegal loan have higher loan interest for trading capital.

An extremely when joining with future trading without have basic knowledge about risk management in trading, unbelievable with many kinds of trader typical right now not only lack knowledge but also not think forward when getting loss due from saving capital or borrowing funds.
sr. member
Activity: 826
Merit: 266
Trading is difficult.
The first lesson is you never lose: either you gain, or you learn something. Having said that, you should trade only with a sum you are allowed to lose entirely.
Never trade with your life savings, and never think that paper trading (trading with fake money) is a good exercise for the real thing.
I agree with you.

First don't use life savings for trading because trading is difficult, it's easy to lose all or most of trading capital. If your trading capital is life savings, you will lose rest of your life or will live in pain.

Second, after having good trading capital allocation, not from life savings, it's good if a trader has a plan to gradually withdraw profit to slowly retrieve initial trading capital back. With trading, loss can come anytime but if a trader already retrieve initial capital back, it's fine even he loses profit part.

Quote
So, to sum up, my advice would be: to start slowly, be prepared for economic losses, but have a better understanding of the market.
It's so hard to understand the market and four years or more are needed to understand it. 1 or 2 market cycles that are 4 years or 8 years to understand the market.
legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23
<...>
As expert in the futures, what steps would you recommend to new trader in the field of Futures trading.

Trading is difficult.
The first lesson is you never lose: either you gain, or you learn something. Having said that, you should trade only with a sum you are allowed to lose entirely.
Never trade with your life savings, and never think that paper trading (trading with fake money) is a good exercise for the real thing.

So, to sum up, my advice would be: to start slowly, be prepared for economic losses, but have a better understanding of the market.
full member
Activity: 1092
Merit: 227
This article is really helpful for new trader like me and anyone who has not deeply involved with the futures trading. I am going to be very honest, I find the futures trading very complicated as well as very risky type of trading. It literally makes me think I’m better at HODL rather than lose everything in blink of any eye.

Anyways coming to the point the article seems thorough one. I read through the abbreviations given. This itself clears many facts about the futures and it’s further steps.

As expert in the futures, what steps would you recommend to new trader in the field of Futures trading.
legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23
I could title this post "Everything you wanted to Know about cash and Carry but were afraid to ask!

The BIS published this paper about the cash and carry: 50 pages of detailed analysis,

Crypto carry
legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23
Apparently Gemini wants to fill the void left by FTX:

Quote
The U.S.-based crypto exchange Gemini founded by Cameron and Tyler Winklevoss is reportedly looking to launch an international cryptocurrency derivatives exchange, The Information reported.
The platform would specifically offer perpetual futures, a type of derivative that is banned in the U.S. for retail traders as it doesn’t have an expiration date and can be traded with sizable leverage, and is therefore considered a highly risky product.[/img]

Seems like a risky move, but Gemini is always keen on moving in the business without disrupting his relationship with the regulators.
We have seen it’s not that easy!
legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23
With this selloff in bitcoin, we saw backwardation for the first time, with a massive flattening in the future curve.

1 month basis has been declining for a few sessions, and it is approaching flat value on major exchanges while has already negative value on many unregulated venues.




Term structure is flattening massively, and even on CME front month is trading at a discount versus spot.





legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23
In the future market, the collapse of FTX had a few technical consequences, which I will describe in a later post.

One thing is for sure: the biggest exchange, Binance, globbed up the vast majority of the futures market that was trading on FTX. This also probably means that this exchange was actually used only by retails, as finance is a platform rarely used by institutionals.
legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23
Future open interest is soaring. All the open positions on the exchanges are topping historical maximums:




Direction is unclear. There is little tension in the funding market, meaning that future positions are not imbalanced:



According to the below graph, positions remain on the long side, as they have remained over the last down leg.




I think this is quite bullish, as the price movement hasn’t caused many positions closure, as per above graph.


legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23
ETH Derivatives market is getting more focus even in the traditional mainstream.

Bloomberg posted an article looking at options and futures structures just before the merge. They analysed both futures and options market, starting from a note from Glassnode: 

I am reporting here the article, as it is behind a Paywall:

Derivatives Suggest a ‘Sell-the-News’ End to the Ethereum Rally

Quote
Derivatives Suggest a ‘Sell-the-News’ End to the Ethereum Rally
Upgrade is moving blockchain to less energy-intensive system
September call options ‘dwarf’ put options, Glassnode says

ByVildana Hajric and Olga Kharif
August 12, 2022, 2:00 PM GMT+2
From Crypto
 
Ether is surging in anticipation of a  groundbreaking software upgrade to its blockchain. Sophisticated traders are positioning for the rally to continue until that happens -- and then for the cryptocurrency to plummet afterward. 
Speculators in derivatives markets are scooping up call options to bet on an Ether advance into September, when the upgrade is supposed to happen. Yet futures and options are suggesting they’re expecting the price to drop after the event in what analysts at Glassnode say could be a “sell-the-news”-type of situation.
September call options “dwarf” put options, with traders waging Ether’s price could rise to around $2,200 from its current $1,800 level, according to Deribit data compiled by Glassnode. There’s even significant open interest out to $5,000. But for the month after the update, there’s little demand for calls and greater demand for downside protection, suggesting that the traders are hedging or speculating on downside risk then, said Glassnode analysts.
“Post Merge, the left tail is pricing in significantly higher implied volatility, indicating traders are paying a premium for ‘sell-the-news’ put-option protection post-Merge,” Glassnode analysts wrote in a note.


Source: Glassnode, Deribit Source: Bloomberg
legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23
Interesting development in the futures market.
Future curve in ETH is showing a deep backwardation.

Backwardation happens when shorter expiring futures are trading below spot price, it is the opposite situation of the congango, we have observed many times on the Bitcoin future curve.



From the graph, you can see from the red line that since the beginning of august the curve has begun to exhibit a steep backwardation, i.e. the first contract has begun to trade at a steep discount versus spot price.


One reason for this can be attributed to selling pressure ahead of the merge, expected to happen on September 19th.
Probably a lot of actors, with underlying long positions that cannot be sold, maybe because
locked in staking platforms, or locked  in validators, are hedging against a future price drop.
So, instead of selling their token, they are selling futures and keeping the yielding tokens, so to be neutral against price movements.

This of course adds pressure on the futures markets driving the curve in backwardation.

This interpretation of “real users selling future” is consistent with the particular fact that even if the backwardation is present on every future market, this is more prevalent in unregulated, or “less regulated” ones, leaving the CME behind.





This, coupled with the tiny open interest on the most “tradfi friendly platform”  means that the origin of this shape is not in the financial market betting against the ETH price.


legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23
Market Crash Post Mortem
The last Market Dump that happened last friday, was particularly interesting in my opinion. As far as We can see, much of the action can be traced back to the derivatives market.
A few insightful Post mortem were released, I will analyse here, tring to sum them up and add my own consideration and other material I found in different places.
All relevant links are reported at the end of this post and clearly referenced when used.
 
What happened

Last Friday marked accelerated an already weak price action, and bottomed at 42,020 corresponding to a loss of 39% since the ATH observed on November 9th.



The loss is the 2th biggest fall in BTC terms in 2021 only.
If we put in relations the depth of market correction and the time span of the drawdown we see we are in a mixed situation:



 
Anatomy of a crash
 
As noted in the Glassnode report, the catalyst was the break of the support level of 53K on Bitcoin on the back of traditional financial markets weakness. I am not fully confident this is the whole story, but often things happen in the financial markets without a clear trigger, and in the post-mortem analysis we usually agree on what was the cause of the movement, while it would be important to know it before the movement, but this is a different story. Once this level broke a flurry of market longs liquidations led to an astonishing reduction of OI: in a few hours a reduction of $5.4BLN, equivalent to the 25% of the total value.



At 58,202 in BTC terms, this liquidation was the second biggest in history, after the one in May which topped 79,244 BTC



Notably, thi reduction was pretty much evident outside the CME exchange.


The majority of the positions held at the CME are long term ones, as the main customers of this exchange are uber-regulated institutional investors. BITO’s proponents being the biggest of them all holding more than 5,000 futures contracts. Also, the CME being closed helped the poor liquidity of the market, which in turn is one of the reasons why the move took place during a friday night’s lack of liquidity
As the long futures positions were liquidated the funding needed to be paid to keep those positions opened fell sharply. As we have already said in this thread, when the funding is positive, long position holder must pay to keep their position open, while the opposite happens when the funding rate is negative. So, funding rate is a sort of “thermometer” of the imbalance of the future market: when the finding is extreme, this means also positioning is extreme, in one way or the other.
When longs are liquidated, suddenly, all the long retail position gets closed out, so only short position are left in the street so funding turns negative:
 


Funding rate turned to -0.035%, the most extreme level in months.
As you can see, the funding premium has been positive since the beginning of October. Prolonged period of time with positive funding means a high level of confidence by the traders about market bullishness. This confidence can soon turns in complacency, that ignores without taking actions against warning signs of a different market scenario.
Another sign of this complacency has been the continuous outflows from the exchanges:



Typically, users keep their funds at the exchange when they are in immediate need of trading, hence when exchanges see outflows this means users are willing to sell (either against FIAT or vs Altcoins) while when an outflow is observed this means users aren’t keen on selling their fund too soon.
Also, as noted by Coindesk, market participants didn’t see that coming, as the implied volatility for 1m expiry options had been flat since weeks at a tad less than 80%. When the crash occurred the volatility squeezed higher to 98% and steadily declined later when the context of the move was much more clear .
How to get warning signals.
 
Elevated funding rates, coupled with non-decreasing non-CME Open Interest and lack of liquidity on the exchange have signalled a certain stance of complacency in the market. This complacency could have led in one or another direction . As things developed, of course the short leg was the one to benefit. Also given the low liquidity on the exchange, market liquidation mechanism resulted in an accelerator of the movement itself, as liquidity was scarce. This makes an obvious recipe to look for another violent measure: Elevated OI are difficult to maintain, if the funding rate get elevated, as those represent the “cost of taking that position”. So those position must be closed sooner or later, either via a liquidation run, or a bull run, when holder naturally close  their positions.
 
 

Useful links
 
The Week Onchain (Week 49, 2021)
How Bitcoin Set Itself Up for This Sell-Off
Bitcoin's Saturday sell-off (Paywall)

legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23
I am posting here just to make you aware that I opened a "contiguous" thread on the future-based ETF:
Everything you wanted to know about a future Based ETF and were afraid to ask

From now on, I will post there analysis on contango, or other ETF-related mumblings.
copper member
Activity: 2870
Merit: 2298
Will they be able to gain what they have lost?
No. Not unless the futures market sees an extended period of backwardation.

Right now the ETF will see another approximately 1% loss due to rolling from November to December contract (assuming no slippage).

I do believe so.
I am close to replicating the index in the Twitter thread above. I suspect the cost of rolling shoots on the roll dates, but adding 1% cost each month is bad.
Again, bad for the final investor.
All this while the SEC is sleeping.
 

The SEC rejecting a physical bitcoin ETF, but approving a cash-settled futures ETF is bureaucracy nonsense. Similarly, allowing the Greyscale investment trust to issue shares that cannot be redeemed, but charges a fee for investors to hold is only going to harm long-term investors.

It would be possible for an issuer to be nearly-guaranteed to match the long-term price of bitcoin (or even beat it by a small amount) if they were to invest in either physical bitcoin or physical-settled bitcoin futures, and were to charge a fee to buy or redeem shares directly to the issuer. The issuer could then not charge a fee to holders of the ETF, and the amount of bitcoin each share represents could remain constant (or even increase, if some of the fee is rebated to the ETF) over time.
legendary
Activity: 2114
Merit: 15144
Fully fledged Merit Cycler - Golden Feather 22-23
Contango is going to killProFunds redditivity according to some analyst:

Contango Conmigo: Why a Bitcoin Futures ETF Could Be a Bloody Ride

There is a Twitter thread, cited in that article, which was very interesting:


https://twitter.com/AtlasPulse/status/1451228229210099726?s=20


I finally managed to replicate that Bitcoin Futures Roll Bleed indicator:



Here you have a zoom on the last year.
I believe that 19% overshoot was an intraday move I am not able to reconstruct.

You see the index has been picking up again, together with the contango season.
I have a suspect this index will shoot again on the next roll when the ETF is actively going to lift that very spread.

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