No, not the character in that painful ballet movie played by Natalie Portman, but the meme that drifts by just beyond our next trade. Everyone is convinced they can see her coming. But in actual fact, no one can.
Notice that almost all of the brokers offering mainstream stock trading into the bitcoin market support only a dozen or so markets. The reason for this is that they do not place trades into the market on behalf of their customers and charge a commission. Instead, to make a profit they make a bid / offer spread on the market being traded that is roughly around the live price in the market at that point in time. And that spread is much wider than the actual market.
For instance, I’m looking at the live S&P futures market. Right now it has a bid / offer spread of 25 ticks. Having a peek at one of the bitcoin CFD brokers at the same time I can see a bid / offer spread of 80 ticks. Instead of charging a fixed commission as First Global Credit does, with fills returned to the customers from trades we place on their behalf onto the stock exchange, the CFD broker charges their fluctuating spreads based on market Volatility.
But if you bear with me for a moment I will point out something even more sordid at play.
Let’s say their trading customers have 5,000 shares of the S&P that are long and 10,000 shares of the S&P that are short. The 5,000 longs and 5,000 of the shorts cancel each other out. If the market goes up, the longs make the money the shorts lose. Well, what happens to the extra 5,000 shorts? They’re losing money right? But there is no actual trade in the live market, so when the shorts close their positions at a loss, the broker pockets that money. Making a profit off the loss of their customer.
What happens in the same situation if the market goes the other way? There are 5,000 extra longs making money. Where does that money come from? It comes from the broker’s proprietary account. And that’s OK. It mostly works out because the cryptocurrency CFD brokers work on the premise that most traders lose money. (Sucks doesn’t it?) They only hedge in the market when they perceive that volatility is rising and therefore there is something to worry about.
This makes their business very cost efficient because they have practically no cost of service delivery... because there are no real trades out there. And that’s why they can only offer a few contracts. They need to aggregate trading around a limited number of markets, so their customers are trading against one another and losses are perceived as manageable. And that works most of the time, but…
This is what happens when THE BLACK SWAN swims by…
(And just to be clear I will provide a hypothetical scenario that might help make my point about market prediction.)
Let’s say everyone is bearish of Tesla and Elon Musk secretly plans a trip to the moon and tragically dies during the launch of his personal mooncraft. (If not Tesla, substitute any company where an unexpected event pushes the market beyond what people expect.) But in this case let’s say there are 10,000 Tesla shorts and everyone buys back their shares at once to cash in on the big win post Mr. Musk’s untimely demise. And each one makes 10,000 USD on their trade. That’s a loss of 100,000,000 dollars or 172,413 bitcoins (at Friday’s prices). Do you think the bitcoin CFD broker is sitting on that kind of war chest? Even at 500 times leverage, that represents a loss of 200,000, Would they be able to cough that sum up and continue to meet their other market obligations? Who knows?
Over time they have put some protections in around this issue. But there is a reason mainstream brokerages do NOT do this and this practice is illegal in many jurisdictions. Ultimately I believe this is the real reason that most brokers in the bitcoin space do not say who they are. If something goes terribly wrong, they will slip away and their customers will pay for it.
This guest article was written by Marcie Terman, Communications Director, First Global Credit and XBT Corp Geneva.
No, not the character in that painful ballet movie played by Natalie Portman, but the meme that drifts by just beyond our next trade. Everyone is convinced they can see her coming. But in actual fact, no one can.
Notice that almost all of the brokers offering mainstream stock trading into the bitcoin market support only a dozen or so markets. The reason for this is that they do not place trades into the market on behalf of their customers and charge a commission. Instead, to make a profit they make a bid / offer spread on the market being traded that is roughly around the live price in the market at that point in time. And that spread is much wider than the actual market.
For instance, I’m looking at the live S&P futures market. Right now it has a bid / offer spread of 25 ticks. Having a peek at one of the bitcoin CFD brokers at the same time I can see a bid / offer spread of 80 ticks. Instead of charging a fixed commission as First Global Credit does, with fills returned to the customers from trades we place on their behalf onto the stock exchange, the CFD broker charges their fluctuating spreads based on market Volatility.
But if you bear with me for a moment I will point out something even more sordid at play.
Let’s say their trading customers have 5,000 shares of the S&P that are long and 10,000 shares of the S&P that are short. The 5,000 longs and 5,000 of the shorts cancel each other out. If the market goes up, the longs make the money the shorts lose. Well, what happens to the extra 5,000 shorts? They’re losing money right? But there is no actual trade in the live market, so when the shorts close their positions at a loss, the broker pockets that money. Making a profit off the loss of their customer.
What happens in the same situation if the market goes the other way? There are 5,000 extra longs making money. Where does that money come from? It comes from the broker’s proprietary account. And that’s OK. It mostly works out because the cryptocurrency CFD brokers work on the premise that most traders lose money. (Sucks doesn’t it?) They only hedge in the market when they perceive that volatility is rising and therefore there is something to worry about.
This makes their business very cost efficient because they have practically no cost of service delivery... because there are no real trades out there. And that’s why they can only offer a few contracts. They need to aggregate trading around a limited number of markets, so their customers are trading against one another and losses are perceived as manageable. And that works most of the time, but…
This is what happens when THE BLACK SWAN swims by…
(And just to be clear I will provide a hypothetical scenario that might help make my point about market prediction.)
Let’s say everyone is bearish of Tesla and Elon Musk secretly plans a trip to the moon and tragically dies during the launch of his personal mooncraft. (If not Tesla, substitute any company where an unexpected event pushes the market beyond what people expect.) But in this case let’s say there are 10,000 Tesla shorts and everyone buys back their shares at once to cash in on the big win post Mr. Musk’s untimely demise. And each one makes 10,000 USD on their trade. That’s a loss of 100,000,000 dollars or 172,413 bitcoins (at Friday’s prices). Do you think the bitcoin CFD broker is sitting on that kind of war chest? Even at 500 times leverage, that represents a loss of 200,000, Would they be able to cough that sum up and continue to meet their other market obligations? Who knows?
Over time they have put some protections in around this issue. But there is a reason mainstream brokerages do NOT do this and this practice is illegal in many jurisdictions. Ultimately I believe this is the real reason that most brokers in the bitcoin space do not say who they are. If something goes terribly wrong, they will slip away and their customers will pay for it.
Strike's Expansion into Europe Accelerates Bitcoin Adoption
Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
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Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
Follow FMevents across our social media platforms for news, insights, and event updates. Connect with us today:
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
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Don't miss out on our latest videos, interviews, and event coverage. Subscribe to our YouTube channel for more!
Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
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Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
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Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
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Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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