Simple answer: CME one of the most reputed and US regulated exchange has BTC Futures cash settled and Options on BTC but you have to trade through a FCM futures there is still a risk that a Futures FCM can go belly up like MF Global so IB with a combined account who claim that your cash is covered via SIPC even if it is used for futures or options trading Bitmex is "regulated" in a tin pot country
The want to fail and go bankrupt and take your money. bitcoin exchanges are gov't regulated legal ponzi schemses. in other words they are scam exhanges. like this market. 99% of the equities in the OTC are scams so not much different..SEC regulated scam exchange scam exchanges regulated by the 'SEC' which is the gov't..who needs the gov't for that.
I think the level of risk being assessed here is way too high. There are many exchanges that are reputable and have real volume. In fact, TT is offering algorithmic access to some of these exchanges. Any party that has custody of your assets poses a credit risk. I think it makes more sense to look at expectation. Say there's a 5% of chance of total loss (which is very high relative to my estimate for a good exchange), you would need to expect to make a little over 5% to make trading a positive expectation endeavor.
Why is it too high? money is money.. traders don't mind market risk but not this silly risk of exchange itself going out of business ...so WHEN WAS LAST TIME EXCHANGES LIKE cme/ nyse/ lsE, ice, asx OR sgx WENT BELLY UP? Yes sure Fcms have gone out of business...but not the exchange. where as these unregulated Crypto Exchanges has! So the current solution is 1) Only deal with UK regulated exchanges so you get client money protection of FCA or 2) SIPC covered US broker who offers both Equity/ Futures under one roof Unfortunately money held at USA FCMs is not covered by SIPC
Well I think the estimates for probability are being estimated too high based on the sentiments of the thread. I may be wrong, but I'm fairly confident there is a set of exchanges where its fairly safe to keep some amount of money to trade. The idea that exchange risk is different from any other type of risk is not factual, just a bias you may have. This is completely fine. I dont think its wrong to want to avoid certain types of risk, but I do think one should be honest about the implications that these risks have on the expected value of trading on an exchange. What I am trying to say is that exchange risk is real, and far higher in crypto that traditional markers (as you mentioned) but being willing to take on this exchange risk is sort of a trade on the credit worthiness of the exchange. This risk reduces the expected value, but it does not necessarily make it a negative expected value. Being willing to take exchange risk buys you access to a market which you may have sufficient edge to cover the EV reduction due to credit risk. A simplified example: 1. The risk of total loss is 5% per annum 2. You post $1 on the exchange 3. You have 25% of alpha per annum 4. You trade on day 1 and plan to withdraw of the last day of the year EV(profit/loss) = $1 x 25% x 95% - $1 x 5% = $0.1875
Likelihood of an exchange going belly up can be guessed up to a certain degree In places like Seychelles you can start a "Exchange" under 20K Would you trust them? or would you trust for example a "Exchange" regulated strict place like Singapore (MAS) the same argument was used by backers of the dodgy Binary option " Exchanges" scams based in Israel Argument was if you can make a return 100% n then what bother about exchange viability risk! Sure one can take any risk in life . I can go and gamble with odds of 1:1000 at an illegal bookie but what if the book one fine day disappears and being illegal I have no chance in hell to get anything back legally speaking You also mention that " there is a set of exchanges where its fairly safe to keep some amount of money to trade." which? Can you name and in which jurisdiction Hell I have seen even regulated market maker OTC FX brokers( who act like exchanges) going belly up Why on earth would anybody take that kind of risk is beyond me . taking Trading risk sure understand that but taking dodgy broker/ exchange risk.. stupid IMHO
To each their own. I've found a lot of success in trading these exchanges. To the point where I've turned over my initial capital several times over. Just wanted to give insight from someone whose actually taken said risk and benefitted from trading in a much less effiencient market. All the reasons you give above still don't actually change the math I've presented. You've only fortified your view that you don't want to take exchange risk. As I've said, that is completely fine. You're not wrong, but to discount the idea that taking said risk doesn't have benefits is just not correct. As a side note, seeing exchanges located in the Seychelles is not that crazy. Many companies incorporate in more "business friendly" environments. I suggest you look into Deribit. They're a solid exchange, decent volume, sane fees (for the space), have product diversity, and they have solid tech.
Sure because you have made money you dismiss this risk.. It can be equally said that just before making that money if the so called exchange would have gone burst I am sure your approach be different My main concern is client money protection..either through broker failure or exchange failure to discount that as a trivial risk is equally not correct! many people don't even know what the above risk is! as soon as they see the word "Broker" or " Exchange" they think it must be solid. And although one might make money many times over... but if a broker / exchange is set out to defraud then as soon as you deposit you could loose it with no fault of your own Re Seychelles... again you are missing my point , I was not talking about registering a normal company for tax effectiveness , I am referring to Finical industry where some regulatory oversight is required to protect the end client 20 K to call them selves as an "Exchange" means lowering the barrier... and not just taht what chances are there that a country/ regulator make it so cheap and easy to start a Fin exchange will have the capacity to oversight such a industry where mom and pop are going to risk their savings! Ofcourse with 10 million as entry limit a company can set out to defraud but chances are lower
To assume I feel this way just because I've made money is not correct. I assessed the credit risk, was willing to start small, and organically sized up. The amount I started with was the amount I was willing to accept a total loss given my estimates of credit risk. I'm not trivializing the risk, in fact I'm acknowledging it and saying that one needs to decide for themselves what tolerance they have for said risk and weigh it against the value of having market access. I think I've clarified my point and will leave it here. Also, I've provided an exchange that I believe has relatively low credit risk and institutional sized flow. This is an example of the exchnages I'm talking about. Not ones capitalized with $20k.
Both Mr A and Mr B has $1000 that they can afford to loose and want TO play the "Market" Mr A chooses exchange traded product s like BTC Option on CME Mr B choose BTC option on thinly regulated / unregulated exchange Both take Market risk and take same position on the market direction But only Mr B is taking additional risk of exchange liquidation Only reason Mr B would do that if thse "Alternative" exchanges offer 1) More liquidity 2) Better spreads 3) Lower comms So even if unregulated exchange offers better conditions in a second the exchange could shut down who knows.. so the "value" in above parameters is zero...and a tinpot country in not likely to look after investor traders "Client Money" like UK does for example Take Saprrow in Singapore or even Derbit OR THAT jAPANESE ONE NOT REGULATED IN THOSE RESPECTIVE COUNTRIES AS TRUE EXCHANGES i THINK That is my point And unfortunately many mom and dad investors don;t even know what this additional risk is! So for learned and exp people before they promote such exchanges it would be honorable to disclose this risk. is it not? Specially with current wild west of Crypto.."Exchanges"