Derivatives for Risk Mitigation

#Derivatives are basically used for Risk Mitigation . Professional traders use derivatives to mitigate their risk on the holding of their assets.

Keeping this in mind , we have brought Derivative Swaps for #cryptocurrencies.

You could have a look into it at test.verslan.com to understand how one could find an option to trade derivatives .

How a position in PEPE swallowed Million dollars

There is an X handle named cryptonerd75. He has posted a tweet that states how he has lost a million on his PEPE and he is thinking about put an end to his life.

What are the lessons? If you're taking a leveraged position make sure you don't keep entire margins in perps. Keep the leveraged margins in perps and take few margins to spot so that a liquidation event won't trigger your funds in spot. Let's say you've $100,000. You take 10x leverage of $1M. When time passes by and if you're still in the position make sure that you readjust the leverage in Binance (that nerd75 guy said to be trading in Binance ) and transfer your remaining amount to spot. let's say you take 20x from 10x and transfer $50,000 to spot. By doing this you save atleast 50% of your funds. Secondly always always learn to respect markets and always put Stop Loss in your trade so that you won't get wiped out. Atleast when you're going for a sleep learn to put Stop Loss. I'm damn sure none of the traders would follow risk management from experienced traders. Bcoz of that , I've given pragmatic suggestions of SL while sleeping and moving money to spot by adjusting leverage for the traders. Hope you'd atleast follow these pragmatic things in your trading and won't end up losing a million . Good Luck !

#PEPE #RiskManagement #Leverage

Skill or Luck.

Is it possible for us to pick 10 bagger (10x), 20 bagger , 50bagger or 100 one frequently . I see lot of tweets stating that they recommended some X,Y,Z tokens and it has become a blockbuster hit. We don't know how much of their money is in line on their own recommendations.

What's my perspective ?

I've 2 decades of experience in capital markets and I'd say it's highly unlikely that one could really know a position would become 10x or 20x or even 50x. Nobody knows their position would infact become next big thing. In finance more than 75% of the things happens on luck. There are 1000s of reasons given for a blockbuster . Those are all on hindsight. Seldom someone really know that it'd infact become one. Not even founders of the cryptos that you bet would know it'd become a blockbuster and that's the truth.

What you guys think. Drop your comments.

#RWA #Risk #Tokenization #TokenizationOfRWA

RISKS INVOLVED IN TOKENIZATION OF REAL-WORLD ASSETS (RWA) Part 2

6.Operational Risks:

Operations of an organization are important for the success of the product. Tokenization involves complexities in the operational aspect of a tokenized product. Operational issues viz., custody, security, and maintenance of tokenized products are highly complex in nature and would take a substantial amount of time and effort to produce better structure for the product.

7. Fraud & Security risks :

Due to permissionless and decentralized nature, there is a probability to commit fraud by stakeholders of tokenized products. The decentralized and pseudonymous nature of blockchain can attract fraudulent activities. Hack, theft, rug pull and other key issues are likely to get involved in a product that are tokenized by an organization.

8. Market Manipulation:

Due to liquidity issues, there is a probability that tokenized assets may be susceptible to market manipulation. This could include circular trading, wash trading, fake it till you make it type of schemes. This would drastically affect market players and traders that could permanently make them stay away from the markets.

These are the risks that are involved in tokenization of real world assets. An organization has to take care of these risks and would try to avoid or mitigate these risks to provide better products for the customers

#RWA #Risk #Tokenization

RISKS INVOLVED IN TOKENIZATION OF REAL-WORLD ASSETS (RWA) - Part 1

1. Regulatory Compliance:

Regulatory risk is one of the most important risks involved in tokenization of RWA. So many regulatory authorities are there for trading finance products. From Europe to the US to Australia different regions have different authorities. Protocol that brings RWA in Blockchain needs to comply accordingly to different geographies. This is one of the toughest ask for a tech company.

2. Market Liquidity:

Have been hearing from so many quarters that tokenizing RWA in itself would bring customers whereas in reality it is not.

The demand for these products depends on so many factors viz., Understanding the product, nature of the products and right mix of the product to attract liquidity towards that specific product. This is easier said than done.

3. Smart Contract & Tech Risks:

The use of smart contracts introduces the risk of vulnerabilities and bugs. Blockchain products are totally dependent on code. In Blockchain, Code= Contract. If and when there are severe bugs then the entire product collapses. Blockchain technology is still in its nascent stage, and adopting it by common man is a tall ask. Apart from this there are scalability issues and interoperability challenges for a product.

4. Valuation Challenges:

Identifying pricing and valuation for tokenization is an herculean task. In most of the products it’s not possible to understand the market value of a product. The parameters to ascertain market value are simply not found with Tokenized products.

5. Market Perception:

Perception in acceptance of tokenized assets is still a tough challenge. This could have a tremendous impact on the value of tokenized products. How the market perceives plays a pivotal role in driving prices of a product. Creating perception is important for holding prices of a product to create value for stakeholders involved in the project.

#Perpetual #futures #RWA #Risk

Why do Futures Market exist?

Part 2 of the article 👇👇👇

Hypothesis 1 - $180. He had made a profit of $20/ ton on hedging the contracts he sold. Anyhow he would be providing delivery of those contracts in physical goods. He'd continue his risk mitigation by doing the trade in forward contracts. He made his $20 on mitigating the risk. But in real terms, there is no change in prices. He would keep on continuing to manufacture Aluminium. He would continue to sell his current obligations in spot markets by delivering to his regular customers. This is what we call hedging. In this case, the manufacturer has mitigated the risk by selling in future markets. He would continue to sell his products as he has to do it to continue his business. In future markets, he wouldn't have a substantial premium yet he would continue to do it simply to manage the risk.

Hypothesis 2 - $220. He had made a loss of $20/ ton on hedging the contracts he sold. Anyhow he would be providing delivery of those contracts in physical goods. He'd continue his risk mitigation by doing the trade in forward contracts. He lost $20 on mitigating the risk. But it wouldn't affect him as he simply mitigated the risk by placing future contracts. Anyhow he is going to settle the contracts with his Aluminium. He sold the Aluminium at $200 when the spot was around $180. This is how a manufacturer mitigates the risk. In the coming forward markets, he would fetch more premium for his products. It's a win-win situation for him.

Now replicate this to crypto and we could understand the concept of derivatives and risk mitigation it plays in the protection.

Why Does the Futures Market Exist? 

Part 1 of the article 👇👇👇

I'd like to give real-world examples to make readers understand the existence of future markets. Let's say there is an Aluminium Manufacturer. He would like to mitigate his risk on the prices of Aluminium. Why is he mitigating his risk? Simple, he doesn't know what would happen to the prices of Aluminium over the future course of his business. 

Before unerstanding the way to mitigate the risk,one must understand that Risk mitigation is the practice of reducing the impact of potential risks by developing a plan to manage, eliminate, or limit setbacks as much as possible.

How would he do that? 

Well, he goes to the "Futures Exchange" to sell his product. He could sell the forward contract of his product. In the forward contract, the probability of receiving a premium for his products is high and he'd sell contracts of Aluminum. Let me explain through a hypothetical case - let's call him Manufacturer A. A sells 10000 contracts of Aluminium of 2 months forward assuming that we're writing this on October 28 and he is selling futures of January contract. A is selling for 10000@ $200/ton. He'd be having $2,000,000 less trading fees in his ac. Say the spot prices are trading around $180. He is getting a premium of $20/Ton. Say at the time of January 28 Aluminium is selling at $180.

Part - 2 To be Continued