But if you are short, and the price goes up, you will have to keep topping up your margin.  Are you prepared to top up a $16k short with $20k margin?   Just trying to figure this out.

I think the model is broken.  And it is going to drive the price of bitcoin sky high.

The reason is the only way retail and institutional investors can get exposure to Bitcoin is through futures. So futures are being used as a substitute for an ETF.  Which is going to blow the price of futures sky high as people FOMO.  

Which means a roaring arbitrage trade will develop with the exchanges. But the cost of funds of being a shorter will spiral out of control due to constant margin calls on the shorts who will have to pour in more fiat. Which will restrict supply, driving the cost higher.   So we should expect an ever increasing divergence between the future price and the exchange price.

yep same here

Yeah, but getting into the logistics of delivery of assorted assets would be too complex for the exchange. So now, imagine you are a big soya distributor so you really need the soya for your business. You can still use the future markets to hedge/fix a price in advance. If soya prices are higher when you need to buy it, you get the profit of the future contracts you have at a lower price and use the extra profit to buy the soya.

Basically it works the same.

You may wonder what happens if a trader forgets to close out a long position. If he bought live hog futures, will someone deliver 40,000 pounds worth of squealing porkers to his back door the morning after his contract expires?

Sorry, but no.

Brokerage firms watch their open accounts and know who has long or short positions in contracts nearing maturity. Prior to delivery day, they inform customers who have open long positions that they must either close out the position or prepare to take delivery and pay the full value of the underlying contract. By the same token traders with short positions are informed that they must close out their trades or prepare to deliver the underlying commodity. In this case, they must have the required quantity and quality of the deliverable commodity on hand.

On the few occasions that a buyer accepts delivery against his futures contract, he is usually not given the underlying commodity itself (except in the case of financials), but rather a receipt entitling him to fetch the hogs, wheat, or corn from warehouses or distribution points.

Food processors or manufacturers who use futures to hedge rarely take delivery because the deliverable grade on the contract may not be exactly what they need. Hence, they will close out their futures position before delivery and buy in the cash market instead.

Sometimes merchants and dealers accept delivery because they can find buyers for many grades and types of the underlying commodity.

They are not used to "delivery". Who in their right senses would want a fucking BUNCH of soya being delivered to them? What about logistics?

Even gold is cumbersome enough.

They are not used to an asset as easily deliverable as Bitcoin is.

Seems like... Maybe it'll level out in time?

It is said they are going to use arbitrage. They will buy and sell from a real exchange and send it to futures.

This video gives some explanation: https://www.youtube.com/watch?v=vGnH-Od1lJM

But the price can change by 20% in one day. Hell, in one hour. Or minute even. So what's the deal here? They haven't done their research, or they are trying to force bitcoin to conform to their fiat norms, or what?

On CME there is daily settlement so you will just be instarekt when trading opens the next morning and you get margin called.  At least the margin requirement exceeds the daily limit.

On CBOE I don’t think there’s daily settlement so the shorts are massively exposed.  You would want to be fully hedged or be a miner.  There is no way 30% margin is adequate for a short over a month period.  That’s a joke.  CBOE is far more a dangerous product but the risk is mostly borne by CBOE.

Haha, yeah no doubt. The horses don't even know what silver is worth...

https://www.youtube.com/watch?v=6gmp2IqReFQ

Ok, so I guess the 20% is the maximum exposure then?  If starting price is $10,000 and you bet it to go up, you really can't profit if it goes higher than $12,000?

Similarly, if you bet it to go down, you can't profit even it it drops under $8,000?

So no incentive to keep pumping it up if it's at $12,000 but it really needs to be at that price at the close of trading if you bet it for 24 hours, and seems like the price opens at 6pm Eastern and closes at 4pm Eastern the following day?

Nah a rogue scribe who snuck a fast one on the boss somehow. Won't last.

Holy shit, I never ever thought I would see a headline in the MSM like this:

How to give the gift of bitcoin this holiday season
https://www.cnbc.com/2017/12/10/how-to-give-bitcoin-as-a-gift.html

 

If it triggers the 20% price either up or down, do the winners automatically win and the losers automatically lose?  Right then and there?

Is it going to hit the circuit breaker on the first day?

I didn't watch it. I can't. I'd cringe too much. But even totally broken beyond repair, it would never go to zero. It's nearly impossible to imagine such a world. How does he do it?

...these people have no idea what they are getting into, do they?