‘A game with negative mathematical expectation or The worst secret in the exchanges closet’ (part 2)
If you look closely at crypto trading, you can see with the naked eye that 90% of the total volume is taken up by futures (derivatives), the so-called leveraged play. If we add margin trading to this furnace, the volume reaches 95% => we conclude that this is practically the whole market
In the previous article we have learnt that spot trading is a ‘zero-sum game’, now let's see how things are with leverage. For example, let's take B********* exchange (you can open any exchange and the indicators will be the same, more or less. From the strong deviations I can single out only the late FTX, there was a terrible situation there)
All instruments will be taken with the same x10 leverage (standard trading of day traders) and additionally I'll note that the figures of negative mathematical expectation worsen exponentially with increasing leverage. From the factual calculations let's find patterns and make appropriate conclusions
You don't need to win the National Mathematics Olympiad to understand that liquidation at the zero sum game with leverage x10 should be at -10% of the price for each instrument. Let's see what we get in practice. For calculations we used data not from calculators, but from randomly opened positions for small amounts, so as not to have any load and the system didn't perceive them as a potential slippage. Mathematical expectation = (actual liquidation / calculated liquidation)*100%
Data points are from last year trades for clarity
BTC/USDT x10 long
Opening: 29414.4
-10% = 26472.96
Liquidation: 26620.1 (actual 9.5%)
Expectation = (9.5%/10%)*100% = 95%
ETH/USDT x10 long
Opening: 1852.08
-10% = 1666.87
Liquidation: 1676.14 (actual 9.5%)
Expectation = (9.5%/10%)*100% = 95%
XRP/USDT x10 long
Opening: 0.6293
-10% = 0.5663
Liquidation: 0.5711 (actual 9.25%)
Expectation = (9.25%/10%)*100% = 92.5%
DOT/USDT x10 long
Opening: 5.026
-10% = 4.5234
Liquidation: 4.574 (actual 9.1%)
Expectation = (9.1%/10%)*100% = 91%
EOS/USDT x10 long
Opening: 0.721
-10% = 0.649
Liquidation: 0.657 (actual 9.1%)
Expectation = (9.1%/10%)*100% = 91%
When increasing leverage and going into less liquid instruments, the situation is even more tragic and mathematical expectation falls below 80%. Let's get back to the previous post and Casino games (Roulette 97.2%, Baccarat = 95%).