cb25
Posts: 3,528 
Likes: 2,668
|
Post by cb25 on Jun 9, 2020 11:25:56 GMT
I will not invest anything in this venture because I do not believe for a minute that it is possible to trade with the risk of losses being 'almost zero' (and certainly not when no details are given on how this can be achieved).
There are also a number of things that work as 'red flags' to me -foreign firm
-complex investment -no real explanation of how it works -claims that I find unrealistic (e.g. risk being 'almost zero') -no mention of a regulator
Hi cb25, thanks for your feedback. I hope I can clarify this by going through your different points: -foreign firm -> Indeed, we are based in Germany - but I hope that this in itself is not a 'red flag'? -complex investment -> You're right, the structure of this type of lending is rather a niche - which is one of the reasons why you can still earn interest rates here I guess -no real explanation of how it works -> We try to explain how it works under www.lendary.net/how-it-works but please feel free to let me know what I can add to explain it better -claims that I find unrealistic (e.g. risk being 'almost zero') -> You're right, this sounds a bit aggressive (and maybe that was a mistake in the framing of things). What we wanted to point out, though, is the fact that the classical default risks that are associated with P2P lending are dramatically reduced since a) your capital can never leave the trading platform and can only be used by traders who buy crypto assets with your capital and b) there is a 24/7 control on the used capital since all of the positions that the traders open are liquid and can be force liquidated in case those positions run against the trader. Does that make sense? Beyond that, you still have a general counterparty risk with respect to the crypto exchange that you trust your money with. But this is something that you have in being on a trading platform anyways. -no mention of a regulator -> Indeed, since we are not operating like an investment management company in this case. We are solely providing a software solution that automates and optimizes your lending on the crypto exchange, i.e. we have no access to your funds at any point in time. I'll tackle the easy one first - I have no problem with German firms, it's more a question of "why is a German firm pitching to UK investors (aren't there enough investors in Germany)?". If I invest via a UK firm, I can look up the company and I know the law covering the firm. I don't have that with foreign firms.
My major problem is lack of belief in 'almost zero' risk. Let's say I invest $100 and it's given to one trader(*) to invest. I'll accept for now the trader can't withdraw the $100 from your platform, but I don't accept at this time they can't lose the money.
Let's say the trader buys an asset at price P. That asset: -can stay at the same price (for a while), that's not a problem -can move to a higher price, trader makes a profit, my money seems safe -can move to a lower price, trader makes a loss, my money is diminished -if the trade is leveraged, the profits/losses are magnified
I accept that systems can have stop-losses, but they work only to limit losses. I've never come across - and can't imagine - a system that allows a trader to buy an asset at price P with a stop-loss at the same price, as that would make the trade a one-way bet - price moves up gives profit; price goes down, stop-loss kicks in and trade is cancelled. I've used stop-losses in the past and they couldn't be set within a given distance of the asset price, e.g. if the price was P, the stop-loss may only be allowed at (say) P-5 or lower.
(*) I know you'll say it's spread over multiple traders, but
-if the technique works for multiple traders it should also work for one trader -even if the different traders are buying different assets, or some buying some selling, a weakness on the technique for one trader can lead to the sum total of all traders making a loss.
|
|
|
|
Post by frankp2p on Jun 9, 2020 11:28:07 GMT
Yes, the rates are much better for USD at the moment, so we focus on that. Let me know what we can about the jargon, that would be really helpful! Ok, I will try and keep it really simple. Traders on the crypto exchange use my capital on margin to leverage their bets. When some of these go wrong, who pays? Exactly, you're right. If a position goes wrong, it is automatically liquidated before the trader would lose his/her ability to pay you back. This system has worked very reliable in the past. In addition, the capital is diversified across multiple small positions. In case of unseen severe market turbulances, the exchange would aim to even halt trading and liquidate margin positions first (according to the terms of the exchange).
|
|
|
|
Post by frankp2p on Jun 9, 2020 11:36:44 GMT
Hi cb25, thanks for your feedback. I hope I can clarify this by going through your different points: -foreign firm -> Indeed, we are based in Germany - but I hope that this in itself is not a 'red flag'? -complex investment -> You're right, the structure of this type of lending is rather a niche - which is one of the reasons why you can still earn interest rates here I guess -no real explanation of how it works -> We try to explain how it works under www.lendary.net/how-it-works but please feel free to let me know what I can add to explain it better -claims that I find unrealistic (e.g. risk being 'almost zero') -> You're right, this sounds a bit aggressive (and maybe that was a mistake in the framing of things). What we wanted to point out, though, is the fact that the classical default risks that are associated with P2P lending are dramatically reduced since a) your capital can never leave the trading platform and can only be used by traders who buy crypto assets with your capital and b) there is a 24/7 control on the used capital since all of the positions that the traders open are liquid and can be force liquidated in case those positions run against the trader. Does that make sense? Beyond that, you still have a general counterparty risk with respect to the crypto exchange that you trust your money with. But this is something that you have in being on a trading platform anyways. -no mention of a regulator -> Indeed, since we are not operating like an investment management company in this case. We are solely providing a software solution that automates and optimizes your lending on the crypto exchange, i.e. we have no access to your funds at any point in time. I'll tackle the easy one first - I have no problem with German firms, it's more a question of "why is a German firm pitching to UK investors (aren't there enough investors in Germany)?". If I invest via a UK firm, I can look up the company and I know the law covering the firm. I don't have that with foreign firms.
My major problem is lack of belief in 'almost zero' risk. Let's say I invest $100 and it's given to one trader(*) to invest. I'll accept for now the trader can't withdraw the $100 from your platform, but I don't accept at this time they can't lose the money.
Let's say the trader buys an asset at price P. That asset: -can stay at the same price (for a while), that's not a problem -can move to a higher price, trader makes a profit, my money seems safe -can move to a lower price, trader makes a loss, my money is diminished -if the trade is leveraged, the profits/losses are magnified
I accept that systems can have stop-losses, but they work only to limit losses. I've never come across - and can't imagine - a system that allows a trader to buy an asset at price P with a stop-loss at the same price, as that would make the trade a one-way bet - price moves up gives profit; price goes down, stop-loss kicks in and trade is cancelled. I've used stop-losses in the past and they couldn't be set within a given distance of the asset price, e.g. if the price was P, the stop-loss may only be allowed at (say) P-5 or lower.
(*) I know you'll say it's spread over multiple traders, but
-if the technique works for multiple traders it should also work for one trader -even if the different traders are buying different assets, or some buying some selling, a weakness on the technique for one trader can lead to the sum total of all traders making a loss.
That's half correct. There is a crucial distinction between the trader and you as a capital provider: Let's take your scenario and say a trader brings 100$ of his own capital to the exchange. In addition he borrows 100$ from you. With the 200$ (leveraged position) he then buys Bitcoin. The Bitcoin price might now drop 50% before the trader would lose his ability to pay you back (and would himself then have zero assets left). Should it drop further, he wouldn't be able to pay you back the full amount. What happens in reality is that if the price drops -15%, his position is already force liquidated automatically. This means, the trader indeed has lost 30$ (15%*200$), but you will be paid back your 100$ + interest rates. It's important to understand that the force-liquidation is not the same as a stop loss. You're right that a stop-loss always means that someone loses. In this case, the trader actually loses money. However, he only loses with his collateral, the capital portion that you provided is not touched. The force-liquidation ensures that this is the case. Does that make sense?
|
|
rocky1
Member of DD Central
Posts: 1,139
Likes: 1,963
|
Post by rocky1 on Jun 9, 2020 11:50:43 GMT
I suppose you got to know when to hold them and know when to fold them.lend money to crypto traders to gamble away at their leisure I will take my chances when the casino open back up
|
|
jonno
Member of DD Central
nil satis nisi optimum
Posts: 2,808
Likes: 3,240
|
Post by jonno on Jun 9, 2020 11:58:31 GMT
You refer to a drop of 15% in your example. Is this the actual level at which the liquidation order is effected, or was this an example. If so, what initiates the liquidation order?
|
|
macq
Member of DD Central
Posts: 1,934
Likes: 1,199
|
Post by macq on Jun 9, 2020 12:13:22 GMT
I'll tackle the easy one first - I have no problem with German firms, it's more a question of "why is a German firm pitching to UK investors (aren't there enough investors in Germany)?". If I invest via a UK firm, I can look up the company and I know the law covering the firm. I don't have that with foreign firms.
My major problem is lack of belief in 'almost zero' risk. Let's say I invest $100 and it's given to one trader(*) to invest. I'll accept for now the trader can't withdraw the $100 from your platform, but I don't accept at this time they can't lose the money.
Let's say the trader buys an asset at price P. That asset: -can stay at the same price (for a while), that's not a problem -can move to a higher price, trader makes a profit, my money seems safe -can move to a lower price, trader makes a loss, my money is diminished -if the trade is leveraged, the profits/losses are magnified
I accept that systems can have stop-losses, but they work only to limit losses. I've never come across - and can't imagine - a system that allows a trader to buy an asset at price P with a stop-loss at the same price, as that would make the trade a one-way bet - price moves up gives profit; price goes down, stop-loss kicks in and trade is cancelled. I've used stop-losses in the past and they couldn't be set within a given distance of the asset price, e.g. if the price was P, the stop-loss may only be allowed at (say) P-5 or lower.
(*) I know you'll say it's spread over multiple traders, but
-if the technique works for multiple traders it should also work for one trader -even if the different traders are buying different assets, or some buying some selling, a weakness on the technique for one trader can lead to the sum total of all traders making a loss.
That's half correct. There is a crucial distinction between the trader and you as a capital provider: Let's take your scenario and say a trader brings 100$ of his own capital to the exchange. In addition he borrows 100$ from you. With the 200$ (leveraged position) he then buys Bitcoin. The Bitcoin price might now drop 50% before the trader would lose his ability to pay you back (and would himself then have zero assets left). Should it drop further, he wouldn't be able to pay you back the full amount. What happens in reality is that if the price drops -15%, his position is already force liquidated automatically. This means, the trader indeed has lost 30$ (15%*200$), but you will be paid back your 100$ + interest rates. It's important to understand that the force-liquidation is not the same as a stop loss. You're right that a stop-loss always means that someone loses. In this case, the trader actually loses money. However, he only loses with his collateral, the capital portion that you provided is not touched. The force-liquidation ensures that this is the case. Does that make sense? this comes back to my question you answered yesterday - in your example above and i assume you are suggesting in all cases the investor can not lose.Their money is protected by the traders position and skin in the game plus the force - liquidation (or thats what it looks like your saying?) So why would anybody invest in any other product such as the stock market/savings etc as this is offering no risk but high reward and why would somebody share that opportunity and not just clean up themselves? Maybe you can see why people are sceptical?
|
|
iRobot
Member of DD Central
Posts: 1,680
Likes: 2,477
|
Post by iRobot on Jun 9, 2020 12:33:36 GMT
From a lunchtime browse, it seems we have Crypto Trader <---- Uses own capital and leverages on borrowed Margin | | BITFINEX <---- Cryptocurrency Exchange1 | | (Margin Strategy Software) <---- Lendary software providers, 20% fee | Margin Funder <---- Us (maybe!)1 Wikipedia info on Bitfinex: "Bitfinex is a cryptocurrency exchange owned and operated by iFinex Inc., which is headquartered in Hong Kong and registered in the British Virgin Islands. Their customers' money has been stolen or lost in several incidents, and they have been unable to secure normal banking relationships" [more]
Couple of links which may be of interest:
What is Margin Funding?
What are the risks associated with offering funding?
Margin Call Policy
and this one:
Can I replace my borrowed funding with funding at a better rate? <--- frankp2p does this then become a race to the bottom? As more Margin Funders sign up (either to the Bitfinex platform generally or when used in conjunction with Lendary), will rates reduce but the associated risks (however mitigated) remain the same? Am I, as a Margin Funder, able to set a minimum interest rate?
|
|
|
|
Post by frankp2p on Jun 9, 2020 12:37:48 GMT
You refer to a drop of 15% in your example. Is this the actual level at which the liquidation order is effected, or was this an example. If so, what initiates the liquidation order? The drop of 15% was an example, in reality the exact threshold depends on the amount of leverage that is used and the asset that is traded. However, 15% are a good indication in terms of how coservative those liquidation mechanisms actually are. The force liquidation is independently triggered by the exchange and neither we or the trader can influence it.
|
|
|
|
Post by frankp2p on Jun 9, 2020 12:41:56 GMT
That's half correct. There is a crucial distinction between the trader and you as a capital provider: Let's take your scenario and say a trader brings 100$ of his own capital to the exchange. In addition he borrows 100$ from you. With the 200$ (leveraged position) he then buys Bitcoin. The Bitcoin price might now drop 50% before the trader would lose his ability to pay you back (and would himself then have zero assets left). Should it drop further, he wouldn't be able to pay you back the full amount. What happens in reality is that if the price drops -15%, his position is already force liquidated automatically. This means, the trader indeed has lost 30$ (15%*200$), but you will be paid back your 100$ + interest rates. It's important to understand that the force-liquidation is not the same as a stop loss. You're right that a stop-loss always means that someone loses. In this case, the trader actually loses money. However, he only loses with his collateral, the capital portion that you provided is not touched. The force-liquidation ensures that this is the case. Does that make sense? this comes back to my question you answered yesterday - in your example above and i assume you are suggesting in all cases the investor can not lose.Their money is protected by the traders position and skin in the game plus the force - liquidation (or thats what it looks like your saying?) So why would anybody invest in any other product such as the stock market/savings etc as this is offering no risk but high reward and why would somebody share that opportunity and not just clean up themselves? Maybe you can see why people are sceptical? Also half true, I would say. The liquidation mechanism works very reliable which leads to a good risk-reward ratio, that's true. Still, the reason why not everyone is using this surely has to do with the fact that a) you are still active on a crypto exchange which many people do not want to be - from an economics point of view, that's definitely one of the reasons why you have risk premia in this case - and b) it is still relatively complicated to set this up: you need your own crypto exchange account and then connect to our software via API.
|
|
|
|
Post by frankp2p on Jun 9, 2020 12:48:37 GMT
From a lunchtime browse, it seems we have Crypto Trader <---- Uses own capital and leverages on borrowed Margin | | BITFINEX <---- Cryptocurrency Exchange1 | | (Margin Strategy Software) <---- Lendary software providers, 20% fee | Margin Funder <---- Us (maybe!)1 Wikipedia info on Bitfinex: "Bitfinex is a cryptocurrency exchange owned and operated by iFinex Inc., which is headquartered in Hong Kong and registered in the British Virgin Islands. Their customers' money has been stolen or lost in several incidents, and they have been unable to secure normal banking relationships" [more]
Couple of links which may be of interest:
What is Margin Funding?
What are the risks associated with offering funding?
Margin Call Policy
and this one:
Can I replace my borrowed funding with funding at a better rate? <--- frankp2p does this then become a race to the bottom? As more Margin Funders sign up (either to the Bitfinex platform generally or when used in conjunction with Lendary), will rates reduce but the associated risks (however mitigated) remain the same? Am I, as a Margin Funder, able to set a minimum interest rate?
Hi there! Very good research, thanks a lot! Indeed, theoretically, if more capital providers enter the space, interest rates should go down. On the other hand, what we have witnessed in the past is that capital providers only flock to those platforms if crypto speculators are more active (and willing to pay high rates). E.g. in 2017 we already had ~1bn USD daily lending volume on Bitfinex and annualized rates still >20% p.a. since traders were trading so much and using external capital. In 2018 we had less activity with ~10% annualized return. in the year so far, volume has been ~500M USD/day with rates mostly between 10-20%. Regarding minimum rates, yes, we are currently working on a feature that will enable users to set a minimum rate for lending their capital. However, from a mathematical point of view, you are then logging in 0% return while your capital is not utilized so it mostly makes sense to lend capital at all times since maximum lendin durations are mostly 2 days anyways.
|
|
cb25
Posts: 3,528
Likes: 2,668
|
Post by cb25 on Jun 9, 2020 12:57:19 GMT
I'll tackle the easy one first - I have no problem with German firms, it's more a question of "why is a German firm pitching to UK investors (aren't there enough investors in Germany)?". If I invest via a UK firm, I can look up the company and I know the law covering the firm. I don't have that with foreign firms.
My major problem is lack of belief in 'almost zero' risk. Let's say I invest $100 and it's given to one trader(*) to invest. I'll accept for now the trader can't withdraw the $100 from your platform, but I don't accept at this time they can't lose the money.
Let's say the trader buys an asset at price P. That asset: -can stay at the same price (for a while), that's not a problem -can move to a higher price, trader makes a profit, my money seems safe -can move to a lower price, trader makes a loss, my money is diminished -if the trade is leveraged, the profits/losses are magnified
I accept that systems can have stop-losses, but they work only to limit losses. I've never come across - and can't imagine - a system that allows a trader to buy an asset at price P with a stop-loss at the same price, as that would make the trade a one-way bet - price moves up gives profit; price goes down, stop-loss kicks in and trade is cancelled. I've used stop-losses in the past and they couldn't be set within a given distance of the asset price, e.g. if the price was P, the stop-loss may only be allowed at (say) P-5 or lower.
(*) I know you'll say it's spread over multiple traders, but
-if the technique works for multiple traders it should also work for one trader -even if the different traders are buying different assets, or some buying some selling, a weakness on the technique for one trader can lead to the sum total of all traders making a loss.
That's half correct. There is a crucial distinction between the trader and you as a capital provider: Let's take your scenario and say a trader brings 100$ of his own capital to the exchange. In addition he borrows 100$ from you. With the 200$ (leveraged position) he then buys Bitcoin. The Bitcoin price might now drop 50% before the trader would lose his ability to pay you back (and would himself then have zero assets left). Should it drop further, he wouldn't be able to pay you back the full amount. What happens in reality is that if the price drops -15%, his position is already force liquidated automatically. This means, the trader indeed has lost 30$ (15%*200$), but you will be paid back your 100$ + interest rates. It's important to understand that the force-liquidation is not the same as a stop loss. You're right that a stop-loss always means that someone loses. In this case, the trader actually loses money. However, he only loses with his collateral, the capital portion that you provided is not touched. The force-liquidation ensures that this is the case. Does that make sense? Yes, that makes sense, but two observations:
1) if it was $100 trader money and $100 of mine -good (for lenders): fair chance of stopping the trade before lenders lose money (though trader might) -bad (for trader): not much leverage.
2) if it was (for example) $100 trader money to $900 of lender money -good (for trader): 10 X leverage enables big profits to be made -bad (for trader and lenders): 10% loss wipes out the trader, any bigger loss starts to impact lenders
In general,
-the smaller the leverage, less in it for traders but the safer it is for lenders (though I still don't accept 'almost zero') -the bigger the leverage, more in it for traders but less safe for lenders
|
|
|
|
Post by frankp2p on Jun 9, 2020 13:08:03 GMT
That's half correct. There is a crucial distinction between the trader and you as a capital provider: Let's take your scenario and say a trader brings 100$ of his own capital to the exchange. In addition he borrows 100$ from you. With the 200$ (leveraged position) he then buys Bitcoin. The Bitcoin price might now drop 50% before the trader would lose his ability to pay you back (and would himself then have zero assets left). Should it drop further, he wouldn't be able to pay you back the full amount. What happens in reality is that if the price drops -15%, his position is already force liquidated automatically. This means, the trader indeed has lost 30$ (15%*200$), but you will be paid back your 100$ + interest rates. It's important to understand that the force-liquidation is not the same as a stop loss. You're right that a stop-loss always means that someone loses. In this case, the trader actually loses money. However, he only loses with his collateral, the capital portion that you provided is not touched. The force-liquidation ensures that this is the case. Does that make sense? Yes, that makes sense, but two observations:
1) if it was $100 trader money and $100 of mine -good (for lenders): fair chance of stopping the trade before lenders lose money (though trader might) -bad (for trader): not much leverage.
2) if it was (for example) $100 trader money to $900 of lender money -good (for trader): 10 X leverage enables big profits to be made -bad (for trader and lenders): 10% loss wipes out the trader, any bigger loss starts to impact lenders
In general,
-the smaller the leverage, less in it for traders but the safer it is for lenders (though I still don't accept 'almost zero') -the bigger the leverage, more in it for traders but less safe for lenders
You're right, however, the maximum leverage that Bitfinex allows at the moment is 5. Accordingly, the threshold for force-liquidation becomes more conservative the more leverage is used.
|
|
cb25
Posts: 3,528
Likes: 2,668
|
Post by cb25 on Jun 9, 2020 15:13:12 GMT
From a lunchtime browse, it seems we have Crypto Trader <---- Uses own capital and leverages on borrowed Margin | | BITFINEX <---- Cryptocurrency Exchange1 | | (Margin Strategy Software) <---- Lendary software providers, 20% fee | Margin Funder <---- Us (maybe!)1 Wikipedia info on Bitfinex: "Bitfinex is a cryptocurrency exchange owned and operated by iFinex Inc., which is headquartered in Hong Kong and registered in the British Virgin Islands. Their customers' money has been stolen or lost in several incidents, and they have been unable to secure normal banking relationships" [more]
Couple of links which may be of interest:
What is Margin Funding?
What are the risks associated with offering funding?
Margin Call Policy
and this one:
Can I replace my borrowed funding with funding at a better rate? <--- frankp2p does this then become a race to the bottom? As more Margin Funders sign up (either to the Bitfinex platform generally or when used in conjunction with Lendary), will rates reduce but the associated risks (however mitigated) remain the same? Am I, as a Margin Funder, able to set a minimum interest rate?
Hi there! Very good research, thanks a lot! Indeed, theoretically, if more capital providers enter the space, interest rates should go down. On the other hand, what we have witnessed in the past is that capital providers only flock to those platforms if crypto speculators are more active (and willing to pay high rates). E.g. in 2017 we already had ~1bn USD daily lending volume on Bitfinex and annualized rates still >20% p.a. since traders were trading so much and using external capital. In 2018 we had less activity with ~10% annualized return. in the year so far, volume has been ~500M USD/day with rates mostly between 10-20%. Regarding minimum rates, yes, we are currently working on a feature that will enable users to set a minimum rate for lending their capital. However, from a mathematical point of view, you are then logging in 0% return while your capital is not utilized so it mostly makes sense to lend capital at all times since maximum lendin durations are mostly 2 days anyways. Is the Bitfinex exchange operational 24 hours/day every day of the week? If not, don't you have the potential problem of the opening price on the exchange on one day (say Tuesday) being very much lower than the closing price of the previous day (Monday in this example), thereby 'gapping', i.e. skipping over the price where the force-liquidation would kick in?
|
|
|
|
Post by frankp2p on Jun 9, 2020 15:33:54 GMT
Hi there! Very good research, thanks a lot! Indeed, theoretically, if more capital providers enter the space, interest rates should go down. On the other hand, what we have witnessed in the past is that capital providers only flock to those platforms if crypto speculators are more active (and willing to pay high rates). E.g. in 2017 we already had ~1bn USD daily lending volume on Bitfinex and annualized rates still >20% p.a. since traders were trading so much and using external capital. In 2018 we had less activity with ~10% annualized return. in the year so far, volume has been ~500M USD/day with rates mostly between 10-20%. Regarding minimum rates, yes, we are currently working on a feature that will enable users to set a minimum rate for lending their capital. However, from a mathematical point of view, you are then logging in 0% return while your capital is not utilized so it mostly makes sense to lend capital at all times since maximum lendin durations are mostly 2 days anyways. Is the Bitfinex exchange operational 24 hours/day every day of the week? If not, don't you have the potential problem of the opening price on the exchange on one day (say Tuesday) being very much lower than the closing price of the previous day (Monday in this example), thereby 'gapping', i.e. skipping over the price where the force-liquidation would kick in? Good point, but crypto markets and the Bitfinex exchange is operational 24/7 so you don't have any overnight problems or gaps.
|
|
