Bitcoin Forum

Maybe my mathematics or logic is a bit messed up, but I would like to find out from my fellow traders.

Let's say I am going to short and long Doge using the same entry and exit price with the 1000 USDT I have in my derivatives account.

Case 1:
I long Doge using my initial margin of 1000 USDT on 10x leverage, this means my position size will be 10,000 USDT. Assuming my entry price was 0.1 USDT and exit price is 1 USDT

Based on the calculations, this is how my ROI and profit will look like
https://i.imgur.com/Q9gSkV6.png

Case 2:
I short Doge using my initial margin of 1000 USDT on 10x leverage, this means my position size will be 10,000 USDT. Assuming my entry price was 1 USDT and exit price is 0.1 USDT

Based on the calculations, this is how my ROI and profit will look like
https://i.imgur.com/cSpYB6u.png

Just a mere 9,000 USDT profit vs 90,000 USDT profit for holding positions through the same price ranges but in different directions (1 to 0.1 vs 0.1 to 1)

It completely doesn't make sense to me. If the traders are holding positions against each other, then where does the rest of the money go?

0.1 -> 1 = 900% increase
1 -> 0.1 = 90% decrease

Base profitability on percentage increase/decrease, rather than unit price increase/decrease.

Hey hey hey. That's pure logic and mathematics both combined. On one side you are getting 900% increase and on the other hand 90% decrease. Trust me a coin going 90% decrease has much more probability than it going on to a 900% increase. as your seeing it to the extreme this is looking this much variated, for example if you take 0.1 USDT becoming 10 USDT it becomes 100x increase so your return will be 900,000 USD on a 10x leverage. Similarly if you expect price to become 0.01 USDT from 1 USD the return will be 9900$ only as compared 900000 USD in the other case. It's basic percentages.

Your calculations are not wrong, the upside is in theory unlimited while the downside can at most double your profits, this is because the price of an asset cannot really be negative and it can only reach a value of zero, while the upside literally has not limit and it could reach an infinite high price, I know this is not possible but it should tell you the massive difference between shorting and going long, also in my research I found out that the profits you can obtain by shorting a coin like bitcoin are extremely limited while going long is where the massive profits are, and such a small research is what convinced me to not waste my time trying to short the market with my strategy.

Just to be on the same page:

LONG
1- 10 000$ investment in 0.1$ DOGE = 100 000 doge.
2- DOGE goes to 1$. 100 000 DOGE = 100 000$
3- Profit = 100 000$ - 10 000$ = 90 000$

SHORT
1- 10 000$ to short 1$ asset - you borrow 10 000 DOGE and sell.
2- DOGE goes to 0.1$. buyback 10 000 DOGE for 1 000$
3- Profit = 10 000$ - 1000$ = 9 000$


As you can see its both 10 000$ position (1000$ on 10x leverage) but one is 100 000 doge long and the other one is 10 000 doge short. So its not that traders "are holding positions against each other" because one trade is opened at 0.1$ and the other one is opened at 1$ weeks after. One trade is 100 000 doge, other is 10 000 doge.


fun fact - "In April, an oversupply of oil led to an unprecedented collapse in oil prices, forcing the contract futures price for West Texas Intermediate (WTI) to plummet from $18 a barrel to around -$37 a barrel." https://www.investopedia.com/articles/investing/100615/will-oil-prices-go-2017.asp

Thanks for the simple and accurate explanation. This makes perfect sense now, I should have looked at position size in the sense of the contract (Doge) and not the USDT which was collateral.

It is also helpful to judge the results in terms of % as you actually mentioned in your subject title:

1) Going from 0.1 to 1.0 is a 900% gain in your favor

2) Going from 1.0 to 0.1 is a 90% gain in your favor (as a short seller of course)

This is also relevant when you look at shit coins that lost like 99% in value and then the developers claim that there is sooo much potential when we just go back to where we came from (and even further of course...)

3) Going from 1.0 to 0.01 is a 99% loss (and we have often seen that happen with shit coins)

4) Going back from 0.01 to 1.0 would be a 990% gain in your favor (for a coin that obviously nobody wanted anymore and hence the loss of that magnitude in the first place9)

>> and surprise surprise, the 99% loss happens at least 10 times more often than the 990% recovery  ;)