Key Post How to bet on Bitcoin falling

Duke of Marmalade

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Thanks, I know in general how shorting works, I'm just more curious about the specifics of this IG product.

Maybe I just need to research this myself, but if you know off the top of your head, how often does the interest rate change? what determines whether shorts are getting a -/+ rate? Is it just based on whether the bids/asks are diverging from 'spot'?
can't help sorry
 

landlord

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I wouldn’t bet on bitcoin falling to any great extent in the medium term....

https://atozforex.com/news/cryptocurrency-exchanges-suspend-user-registration/

There are many other articles similar to this online.

I have many friends who are desperate to sign up with exchanges but are still not able to due to the exchanges struggling to cope with the high demand for registrations. All of these exchanges for the average Joe (except for the futures market) as far as I am aware only give you the opportunity to go long not short.
 
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lukas888

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Not correct any of the multitude of CFD providers will allow you go long or short with deposit of 20 to 80%
depending on amount.
 

landlord

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Ok fair enough however I would doubt the average Joe desperate to get in on the action is currently looking to short Bitcoin.
 

Brendan Burgess

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IG Index has told me that most of their customers want to go long on Bitcoin, so they run out of capacity a lot of the time.

They welcome people to go short as it helps them to balance their books.

Brendan
 

RichInSpirit

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Hi Brendan, are you getting a daily statement showing costs or interest added to your account if this is the case?
 

Negotiator

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If you Buy Bitcoin, you have to pay an overnight financing cost of around 35% a year.
But if you sell Bitcoin, as I have done, you will be paid a financing cost of around 7.5 % a year.

Not sure how you are calculating this Brendan but your funding costs should be around 3% over funds p.a. (4% or 5% in total) MAX and you don't get paid interest for shorting, you pay interest just the same as it effectively applies to borrow funds on the margin difference. IG effectively take the risk of traders potentially defaulting on the trade and IG carries the full liability of that by repurchasing the stock.

That said, it looks like you timed this particular trade well! :) Did you close out the trade or are you still in it? You're a brave man for shorting BTC though in my opinion, even at the price you got in!

Let me guess before you answer........:D

You thought this was the crash that would take it to below $100 and didn't close out any of it! :)
 

Brendan Burgess

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you don't get paid interest for shorting,
That is really interesting.

Their Key Information document is incorrect so.

Overnight funding charges



Our daily overnight funding rate is currently 0.034% for bitcoin (12.5% per annum), and 0.055% for bitcoin gold and bitcoin cash (20% per annum). At present, clients with a long position will pay this overnight funding rate, while clients with a short position will receive on the overnight funding rate. In addition, a 7.5% per-annum IG admin fee will also apply for both long and short positions.


The statements they send me every day showing the daily interest added to my account must be wrong also.

As you can see from the above, the net interest paid for shorting has now fallen to 5%.

Brendan
 
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Brendan Burgess

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That said, it looks like you timed this particular trade well! :) Did you close out the trade or are you still in it?
As I have said repeatedly, I can't predict the short term gyrations of an irrationally priced asset. It rose in price after I short sold resulting in notional losses. It then fell to $7,000 resulting in good paper profits. It's back up to $11,000 now. So my profits are reduced.

Short selling an irrationally priced asset is not like any other investment I have made. I made a decision to close out if it reached $34,500 and lick my wounds.

I am less clear at what price I would close out when it falls.

I ask myself the question: If I did not have a position in it, would I short sell Bitcoin at $3,000? The answer is probably not. The maximum gain is $3,000 by doing so, the potential loss is unlimited as it could well spike back up to $20,000 or even $40,000 en route to zero.

So maybe $3,000 is the close out position?

I did ask myself the same question at $7,000 but felt that the risk/reward ratio was still ok.


Brendan
 
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Duke of Marmalade

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Not sure how you are calculating this Brendan but your funding costs should be around 3% over funds p.a. (4% or 5% in total) MAX and you don't get paid interest for shorting, you pay interest just the same as it effectively applies to borrow funds on the margin difference.
I don't think that is how it works. It is not related to the margin. Let us take a conventional Forex bet, say, €/$ and let us say we are short 10K € at 1.25. Note that "short" is a relative term, we are long the $. IG process this as we owe 10K € and we have deposited 12.5K $. Then we pay overnight rate (actually Tom rate but not a rate +3%) on the € and we earn overnight rate on the $. The difference is credited or debited from the account. In this example it will be miniscule as the difference in overnight rates is almost negligible. It is the difference that matters.

Now for the $/BTC I can confirm that I too was short BTC /long $ and was credited with 12.5% p.a. (less admin fee). This means that the overnight interest rate on BTC is 12.5% less than on the $. That implies that IG's overnight rate with the market is about -14% p.a. IG is on balance long BTC and it is costing it 14% p.a. which of course it passes on to its punters.
 
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Negotiator

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That is really interesting.

Their Key Information document is incorrect so.

Overnight funding charges



Our daily overnight funding rate is currently 0.034% for bitcoin (12.5% per annum), and 0.055% for bitcoin gold and bitcoin cash (20% per annum). At present, clients with a long position will pay this overnight funding rate, while clients with a short position will receive on the overnight funding rate. In addition, a 7.5% per-annum IG admin fee will also apply for both long and short positions.


The statements they send me every day showing the daily interest added to my account must be wrong also.

As you can see from the above, the net interest paid for shorting has now fallen to 5%.

Brendan
That's odd, I've been charged short interest for as long as I can remember (see attached). Perhaps it's different for Cryptos.......the interest rate is completely different too it would seem. Apologies, I made an incorrect assumption that they were charged in the same way. I guess when they are collecting 20% interest rate (insane rate for spread betting) they can very easily give punters a rate on the short side of the trade. The rates are far too tight in other 'normal' trades.
 

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Negotiator

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As I have said repeatedly, I can't predict the short term gyrations of an irrationally priced asset. It rose in price after I short sold resulting in notional losses. It then fell to $7,000 resulting in good paper profits. It's back up to $11,000 now. So my profits are reduced.

Short selling an irrationally priced asset is not like any other investment I have made. I made a decision to close out if it reached $34,500 and lick my wounds.

I am less clear at what price I would close out when it falls.

I ask myself the question: If I did not have a position in it, would I short sell Bitcoin at $3,000? The answer is probably not. The maximum gain is $3,000 by doing so, the potential loss is unlimited as it could well spike back up to $20,000 or even $40,000 en route to zero.

So maybe $3,000 is the close out position?

I did ask myself the same question at $7,000 but felt that the risk/reward ratio was still ok.


Brendan
Whatever about the price falling to below say a few thousand bucks, I am amazed that you think it could fall below $100 in such a short time frame. I would nearly go as far as to say you are delusional. That said, I like people who make bold claims.....I'm guilty of that myself from time to time! :)
 

Duke of Marmalade

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That's odd, I've been charged short interest for as long as I can remember (see attached). Perhaps it's different for Cryptos.......the interest rate is completely different too it would seem. Apologies, I made an incorrect assumption that they were charged in the same way. I guess when they are collecting 20% interest rate (insane rate for spread betting) they can very easily give punters a rate on the short side of the trade. The rates are far too tight in other 'normal' trades.
If you are long a stock you are short cash. You pay interest on the cash. You earn "interest" implicitly on the stock through its price movement or explicitly when it pays a dividend. It should be the other way round if you are short the stock.

With Forex you are both long and short cash just in different currencies and you get the difference in their funding rates. It is possible the admin fee always dominates the interest rate differential and so there is always an overnight cost. With BTC the difference is massive and outweighs the admittedly high admin fee of 7.5%.
 
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Brendan Burgess

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Whatever about the price falling to below say a few thousand bucks, I am amazed that you think it could fall below $100 in such a short time frame.
It's irrationally priced at the moment. There is no basis for it to be worth $15,000 just as there is no basis for it to be worth $100.

It could climb to $50,000 but it will end up at zero - not necessarily in a short time frame though.

My gut feeling is that when the bubble bursts properly it will drop like a stone. At the end of this year it could be still worth $20,000. But I expect that the bubble will have burst by then and it will be right down. I might have my timing wrong and on 31 December 2018, it may still be worth more than $5,000. But it will eventually end up at zero.

upload_2018-2-19_11-29-50.png

It was less than $100 four years ago. I see no rational justification for a price of $100, so it could well fall below that over the short term.
 

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Negotiator

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I might have my timing wrong and on 31 December 2018, it may still be worth more than $5,000. But it will eventually end up at zero.
Everything will 'eventually' be at zero. Even Jeff Bezos himself said Amazon will some day disappear but he hopes that it will be long after he's dead!! That said I assume you are talking about a timeframe of not more than a year or two from now?

I just can't wait to go back over these threads at the end of this year, it's gonna be fun! :) If BTC is trading anywhere near it's current levels or above I may have to come up with a caption for the moments where you were shorting it........an 'empty your boots' moment perhaps! Sorry I couldn't resist! :D

Of course I could be the one eating my hat here at the end of the year but I defo won't be losing any sleep on this one! haha
 

Brendan Burgess

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I just can't wait to go back over these threads at the end of this year
I have bets with Paddy Power that it will be below $15,000 at the end of the year. I have bets on Betfair that it will be below $5,000. Of course, they could be losing bets as it's not possible to time an irrationally priced bag of hot air.

I would be more confident of my spread betting. Again, I could lose if Bitcoin goes above $34,500. But I would expect to close out this bet at a profit at some stage.

Brendan
 

Negotiator

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Well, good luck with your bets. I don't take any pleasure in anyone losing money but I know the amounts are small enough in your case so no one is gonna die. Whatever about the below $15,000 bet, the other ones won't pay you a dime in my opinion.......the spread bet for <$100? is it even worth discussing this.....the few bob you're collecting on the short interest is the only bit of money you'll make on it so you should hold on to it for as long as you can!! :D:D:D
 

Brendan Burgess

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.the spread bet for <$100? is it even worth discussing this
Is there a typo somewhere? I have not "spread bet for <$100" - I don't even know what that means.

I have a spread bet where I have "sold" Bitcoin at $14,500. If I close out when it's $13,500 I make $1,000. If I close out when it is €17,500 I lose $3,000.

If it does not rise to $34,500 beforehand, I will probably close out when Bitcoin falls to $3,000.

Brendan
 
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