Hacker News Reader

Comment by hntrader | Hacker News Reader

The derivative contract that drove the success of Bitmex, called a Perpetual Future, was quite the innovation. It behaved like a futures contract that never expired. It then led to copycat products across their major competitors.

Is there any product like this in traditional financial markets?

Regarding the authorities' pursuit of Hayes, it does strike me as odd that they're not going after their major competitors (mostly China-based) who also don't have KYC and are therefore serving US customers through VPN too.

View on HN

This isn’t true. The Bitmex “perpetual swap” isn’t any different from what spread betting and CFD dealers have been doing for years. They are basically just very short term futures that automatically roll forward.

The real genius was to invert the trading process. People often talk about Bitmex being a Bitcoin derivatives platform, but it isn’t. It’s a USD derivatives platform. When you trade on Bitmex you’re trading USD derivatives funded in Bitcoin. This is what in theory allowed them to sidestep all that pesky KYC.

Isn't it rather different to CFDs because of the interest mechanism that it uses to keep the price aligned with spot? Where else have we seen that before Bitmex?

The inversion was another big innovation of the perp contract, yes.

No, spread bettors have constant (daily) financing adjustments. We’ve seen this loads before, it isn’t novel.

From my experience of trading on both it is rather different. With spread betting you are basically just making a bet with the exchange at a price they quote. With the bitmex product you are trading with other traders rather than with the exchange.

They claim to have invented it: "A Perpetual Swap is an innovative product invented by BitMEX"

yeah except retail for the life of them can't figure out how to price quantos and the exchange is dying. They had such a headstart and squandered it. ftx is now positioning itself as the leading exchange.

The dynamic hedging required for quantos is annoying. You’re pretty much required to run a trading bot to keep your position delta where you want it.

Hah, yeah, quantos are constantly giving us trouble on bitmex. Getting the volatility right is a bitch.

You a professional crypto trader? Hit me up if so, always looking to connect/network/etc.

This is true. I wonder, did “inverse” derivatives exist in any real markets before BitMEX? That is, contracts denominated in the quote currency.

Are the China based competitors owned by Americans? I figured they went after this one because it is owned by an American, and they therefore have the authority to go after him.

Julian Assange isn't American :)

and somali pirates..probably somalian??

I think violently attacking people falls under a different category than moving money or information in ways that powerful people/institutions don't like.

> It behaved like a futures contract that never expired.

What does that mean? A futures contract says "on [date], we will exchange [X amount of goods] for [Y amount of money]". If there's no date, nothing ever happens.

Meaning it's delta one. That is, it moves in near perfect tandem to the spot price.

To make sure it actually does move near perfect tandem there is a new interest element that will incentivize the market to have the perp trade close to underlying.

Technically, it's not d1 (just like how futures aren't actually d1). And seeing that annualized % basis in swaps is so high (sometimes as high as 600%), you really need a good rate model to trade these things.

The retail crowd doesn't realize this and is significantly disadvantaged compared to sophisticated market makers with rate models.

tl;dr ignoring swap rates is very dangerous

Would the costs associated with holding perps differ substantially from getting exposure (in the same trade direction) through traditional futures?

In perps we compensate the market through funding, and in futures we do so through term structure (ie the futures price exceeding spot).

Annualized rates can be that high during periods of excess demand for perps but on average they're much lower. Agreed that it's important to take them into account.

You usually find that perps and short term futures have higher rates than longer term futures. A very common strategy is to buy longer term futures and sell shorter term ones.

If you're looking for cheap delta, longer term futures are almost always the way to go. They are a lot less liquid, though. retail has a strange fascination with swaps. I have two theories for why this is: 1) they are easier to manage (you don't need to roll them). 2) they look cheaper on am absolute basis than long term futures.

But if you want long delta, go with long dated futures. If you want short delta, go with swaps. The extra juicy trades come from buying long dated futures on one exchange and selling high rate swaps on another. However, you need a lot of margin or a sophisticated system to manage the risk.

Very interesting to hear about that arb, and the reasons it comes about and persists makes a lot of sense.

In addition to the reasons you mention (retail cluelessness, margin requirements, risk systems), these are some other reasons I can think of as to why the arb persists over time:

- Perps are popular on Bitmex/Bybit, and futures are popular on Ok and Huobi (even though the latter has perps, they're relatively illiquid). So there's a cross-exchange dimension which adds more difficulty and risk in performing the arb.

- Counterparty risk of keeping funds on an exchange increases the required compensation for performing the arb, which allows it to persist.

Some ETFs hold futures that are continuously rolled forward. This is sort of an answer to your question.

Products like USO or some vix etns are examples

Sorry to be pedantic, but the perpetual is a swap not a future.

Correct. I'm saying it behaves like a futures contract in the sense it is delta one. It serves the same purpose as a futures contract but achieves that through a different mechanism.

EDIT: My apologies, you are right. I called it a "Perpetual Future" in my OP, which was a typo. It should've read "Perpetual Swap".

It's a CFD with a constant interest payment. I find it hard to believe that similar didn't exist in the wild days of bucketshop trading in the US.

Without one or something substantially similar why would you ever exit a losing position? :)

Reply on news.ycombinator.com