Topic: Long+Short basket currencies - page 3. (Read 3604 times)

1) Your "basket" proposal is interesting, though not that easy to understand,
how it'll work.

2) Precious metals in recent times are bad targets for shorting.
Good "shorts" are "assets" with weak fundamenatals. Right now
in this box for example are : copper, aluminium, nickel;
 several fiat currencies : AUD, CAD, NZD;
 overvalued stocks : Apple, Amazon, maybe RIMM.

Well I guess there does not seem to be much interest, I had somehow gotten an impression some folks thought shorting was really important.

I wonder if there would be more interest in shorting something else, like maybe gold, silver, platinum?

-MarkM-

FWIW it makes perfect sense to me, but I've been playing with OT baskets. A little diagram of the baskets as issued, split up, etc would help if anyone gets confused.

I think I might finally have hit upon a method of implementing longs and shorts without risking bankrupting the exchange:

long+short basket currencies.

For example a long+short basket for bitcoins would consist of a basket of two currencies, one of which is long a bitcoin the other of which is short a bitcoin.

Obviously there has to be a backdrop, a background, a something against which the shortcoin will still total up to a positive value, otherwise no one would buy the shortcoins, they would be liabilities, not assets.

Since it is often perilous to allow fiat to insinuate itself into one's affairs, let us use for our example basket a backdrop/background of litecoin.

Let us suppose we are pretty darn confident that bitcoins will never be worth more than a thousand litecoins. That is a somewhat arbitrary number, we could use ten thousand, or a hundred thousand, or a million. What is important is that our shortcoins have a positive net value no matter how many of our backdrop/background units the currency we are wanting to do longs and shorts in ends up being worth, "within reason". By "within reason" I mean we really seriously do not expect the shorted unit to ever be worth more than the backdrop provided. If that means the backdrop needs to be a million litecoins, fine. If we can get away with only a hundred thousand, better, because the backdrop is basically a deadweight ballast making the trading of longs and shorts more awkward; it is in essence the collateral and it needs to be large enough that no margin calls will be called for.

Each unit of the long+short basket currency consists of a longcoin and a shortcoin, each of which consists of one ballast-size (a thousand? maybe ten thousand? the size we decide is needed to ensure it will never be worth less than a bitcoin) of litecoins plus or minus one bitcoin.

So if we do settle on 1000 as our required backdrop/ballast scale, one long+short basket would consist of one shortcoin worth 1000 litecoins minus a bitcoin, and one longcoin worth 1000 litecoins plus a bitcoin.

The server/exchange can thus issue this basket currency confident that each unit of the basket needs only 2000 litecoins to "back" it. The long a bitcoin and short a bitcoin cancel out.

Baskets can be broken up into their components, so a  person wishing to go long bitcoins buys the basket, retains the longcoin and sells the shortcoin. A person wishing to go short bitcoins buys the basket, retains the shortcoin and sells the longcoin.

Does this make sense to anyone or will it just boggle the minds of the potential customers?

-MarkM-