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Author Topic: Securities options trading - where are they?  (Read 937 times)
poly
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February 28, 2013, 12:51:22 PM
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One thing that's glaringly missing in bitcoin stock exchanges is option trading.* Not just the BTCUSD options on MPEx, but option trading on the assets - for example S.DICE. There's nowhere to place call and put options, or get leverage for most assets with any actual value.

*I am aware that Cryptostocks has this, https://cryptostocks.com/shareoptions but I'm not sure if it's because of the exchange having about two serious assets or if the bitcoin community isn't interested. Thoughts?

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February 28, 2013, 01:21:09 PM
 #2

One thing that's glaringly missing in bitcoin stock exchanges is option trading.* Not just the BTCUSD options on MPEx, but option trading on the assets - for example S.DICE. There's nowhere to place call and put options, or get leverage for most assets with any actual value.

*I am aware that Cryptostocks has this, https://cryptostocks.com/shareoptions but I'm not sure if it's because of the exchange having about two serious assets or if the bitcoin community isn't interested. Thoughts?

Coming at some point ...

CoinSetter.com
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Oh, ... "Securities" options.  Sorry.   No clue, other than S&P500 futures on http://ICBIT.se, settled in BTCs.

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usagi
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February 28, 2013, 01:26:55 PM
 #3

One thing that's glaringly missing in bitcoin stock exchanges is option trading.* Not just the BTCUSD options on MPEx, but option trading on the assets - for example S.DICE. There's nowhere to place call and put options, or get leverage for most assets with any actual value.

*I am aware that Cryptostocks has this, https://cryptostocks.com/shareoptions but I'm not sure if it's because of the exchange having about two serious assets or if the bitcoin community isn't interested. Thoughts?

Thoughts? One, don't listen to MPOE-PR. You will learn who is dog around here pretty quickly if you follow that rule. Two, you can trade options on Crypto::stocks. I wish you could do this on BitFunder too. I trade options in GMP and VCX and one or two others. I make about 5-10% a month just from the options. But options trading requires "real money"; the underlying investment which I make maybe 3-4 BTC on, costs me 50 BTC. So if the market moves against me I could lose a lot. If your not sure you have a solid investment don't trade options. Options are never for people who aren't sure exactly what they are doing. I think the figures are something like, 70% of options traders go broke in three months.

As an aside, I just had a chat with a forex trader and I asked him why he did it, as 98% of futures traders went broke within six months. And he just laughed and said I'd never make any real money trying to play it safe with options. *shiver*
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February 28, 2013, 01:36:05 PM
 #4

One thing that's glaringly missing in bitcoin stock exchanges is option trading.* Not just the BTCUSD options on MPEx, but option trading on the assets - for example S.DICE. There's nowhere to place call and put options, or get leverage for most assets with any actual value.

*I am aware that Cryptostocks has this, https://cryptostocks.com/shareoptions but I'm not sure if it's because of the exchange having about two serious assets or if the bitcoin community isn't interested. Thoughts?

Thoughts? One, don't listen to MPOE-PR. You will learn who is dog around here pretty quickly if you follow that rule. Two, you can trade options on Crypto::stocks. I wish you could do this on BitFunder too. I trade options in GMP and VCX and one or two others. I make about 5-10% a month just from the options. But options trading requires "real money"; the underlying investment which I make maybe 3-4 BTC on, costs me 50 BTC. So if the market moves against me I could lose a lot. If your not sure you have a solid investment don't trade options. Options are never for people who aren't sure exactly what they are doing. I think the figures are something like, 70% of options traders go broke in three months.

As an aside, I just had a chat with a forex trader and I asked him why he did it, as 98% of futures traders went broke within six months. And he just laughed and said I'd never make any real money trying to play it safe with options. *shiver*
Seconded!

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February 28, 2013, 05:13:15 PM
 #5

One thing that's glaringly missing in bitcoin stock exchanges is option trading.* Not just the BTCUSD options on MPEx, but option trading on the assets - for example S.DICE. There's nowhere to place call and put options, or get leverage for most assets with any actual value.

*I am aware that Cryptostocks has this, https://cryptostocks.com/shareoptions but I'm not sure if it's because of the exchange having about two serious assets or if the bitcoin community isn't interested. Thoughts?

Coming at some point ...

CoinSetter.com
Kraken
WeExchange.co (options)


Oh, ... "Securities" options.  Sorry.   No clue, other than S&P500 futures on http://ICBIT.se, settled in BTCs.

Nice.

For the people that don't let misguided ideology get ahead of their actual thinking, there's always the OIX.

Thousands of Bitcoins' worth of options trading does not go away just because we wish really, really hard. Much like the failed welfare state doesn't become workable just because we carefully avoid ever saying "nigger".

The future of this world is about money, not about opinions.

My Credentials  | THE BTC Stock Exchange | I have my very own anthology! | Use bitcointa.lk, it's like this one but better.
coinedBit
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June 16, 2013, 01:01:11 PM
 #6

well, I don't know - to me, the whole approach seems conceptually broken: there's dedicated websites and services acting in a centralized fashion to serve as securities exchanges for options, futures etc - all backed by bitcoin, which is decentralized in nature. And according to the news coverage during the last weeks, it's obvious that government agencies like SEC are going to carefully look at such exchanges, because they are the "single-point-of-failure", and easy to address/attack.

So what's really needed is someone hacking bitcoin to come up with a decentralized securities exchange, where companies may issue shares, market makers buy/sell securities etc.

It is only natural for stock exchanges, options and futures contracts to evolve on top of a currency, but the way people are doing this currently, it's totally half-assed, because all the benefits of distributed cryptocurrencies are completely disregarded by coming up with a website that acts as a single point of failure, and which is easy to shut down.

A real exchange would ideally also be based on cryptocurrencies and totally distributed, and be running 24/7/365
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June 16, 2013, 01:17:09 PM
 #7

"A real exchange would ideally also be based on cryptocurrencies and totally distributed, and be running 24/7/365"

Mind explaining how this word work? It appears like you just took a description of how bitcoin itself works and replaced "bitcoin" with "exchange".
coinedBit
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June 16, 2013, 01:26:16 PM
 #8

Well, securities are also built on top of fiat currencies these days, and as such they are also fiat-based. Thus, there's no reason why a decentralized securities exchange couldn't be built on top of a virtual cryptocoin p2p network like bitcoin. The building blocks are all there.

Once you understand how bitcoin works, and if you know a bit about stock exchanges, options and futures trading - you'll quickly see that it is definitely possible to come up with decentralized securities exchanges, where entities (individuals/companies) may issue securities (like stock), and market makers and retail customers would be trading those securities.

Obviously, mining would serve a different role, and transaction costs would be more important early on, but otherwise there's no reason why functionality offered by bitfunder.com/cryptostocks.com couldn't be provided in a totally decentralized fashion, especially keeping in mind the sheer volume of transactions caused by options/future trading in real life.
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June 16, 2013, 01:34:10 PM
 #9

How would it be organized? Who would make decisions about changing things (the layout, etc)? Who would make decisions about which securities to list and which to avoid (or do you suggest that everything be listed)?

The oversight you make is that unlike bitcoins, an exchange cannot be some homogenous, static, pre-scripted entity. In that context you cannot have it decentralized.
coinedBit
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June 16, 2013, 01:52:40 PM
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I believe you're wrong, and time will prove it  Cheesy

honestly, these aren't development forums, so it would be kinda pointless to start such a debate here and now. But obviously, we are thinking in different terms and dimensions. No doubt that a traditional exchange couldn't be easily modeled on top of a distributed p2p network like bitcoin, but that doesn't mean that the whole concept would be impossible to implement. Keep in mind that even btc had to make compromises.

The things you mentioned (layout, decision making and what to list) are actually minor issues in comparison to the interesting stuff, like supporting custom order-types, BUY/SELL conditions, options and future trading - but all of these could in fact be encoded as part of the transaction in each blockchain, as long as the transaction itself is turing-complete and run/validated by miners before being propagated further.

Regarding what to list, and what not to list: we already have the concept of mined coins which represent a certain value - equally, that concept could be extended to allow securities to be issued in exchange for bitcoins, so that miners would actually receive revenue for listing securities and trading them, sort of like market making works.

Like I said earlier, the building blocks are definitely there - some concepts would need to be redefined and translated/generalized to be more widely useful, but otherwise it wouldn't be impossible to support real trading workflows in a decentralized fashion, including stocks, options, futures or forex trading.

Finally, I am not really thinking in terms of trading real SEC securities here, but just virtual stocks - sort of like bitfunder/cryptostocks, just in a totally decentralized fashion, which would also be a legit way to implement crowd-funding in a decentralized fashion, without having a single point of failure. You would basically have virtual companies and virtual stocks, where even dividends could be paid out automatically by the system - without any manual intervention required.

stslimited
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June 16, 2013, 03:12:03 PM
 #11

BTCT.CO has options on the securities trading

including S.DICE
coinedBit
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June 16, 2013, 03:15:46 PM
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yes, and it's centralized and as such a pretty conventional vulnerable bitcoin endpoint that is prone/likely to be regulated by authorities, like any conventional exchange, once/if it starts gaining traction through increasing adoption and success.
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June 16, 2013, 06:21:07 PM
 #13

How would it be organized? Who would make decisions about changing things (the layout, etc)? Who would make decisions about which securities to list and which to avoid (or do you suggest that everything be listed)?

The oversight you make is that unlike bitcoins, an exchange cannot be some homogenous, static, pre-scripted entity. In that context you cannot have it decentralized.

I think you're wrong on that.

In the same way that anyone can write new Bitcoin clients with different layouts etc, anyone would be able to write a new exchange client - only the protocol and specification of block-chain need to be fixed.

Listing also isn't as big a problem as you think.  The simplest way (one not involving any Proof Of Stake) is to allow anyone to "list" but allow users to restrict which listings they see based on whose judgment they trust.  So anyone could set themselves up as a listing authority - with users able to choose whose judgment (and hence lists of securities visible to them) they accepted.  Worthless securities would then not even be noticed by anyone unless there was an approval of them signed and in the block-chain by someone the user accepted as being competent to some extent.

So you might decide you want to provide a listing service, take submissions from new securities and run a website on which you commented on those you considered valid.  In the block-chain you'd insert information transactions that proved you approved of (or withdrew approval from) some securities.

I may decide to do it a different way - and run a forum where members voted on which to approve.

Either, Neither or both us might charge a fee to consider applications to us.

Users could either add one or both of us to their list of people whose judgement they trusted - causing securities we approved to be visible in their client.
Users, with a suitable client, could also do things like add 10 approvers and define visibility as being restricted to only those approved by at least X of those 10 approvers.

Decentralised solutions DO exist in concept - the devil, as always, is in the detail of implementation (there's big issues with allowing large quantities of genuine orders whilst preventing spam attacks for one thing).
coinedBit
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June 16, 2013, 06:42:41 PM
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Quote
In the same way that anyone can write new Bitcoin clients with different layouts etc, anyone would be able to write a new exchange client - only the protocol and specification of block-chain need to be fixed.

right, and many building blocks of bitcoin are already pretty flexible and extensible, just think about the way transactions are implemented through a scriptable stack-machine with a bunch of custom forth-like opcodes.

If this powerful concept were to be extended and the blockchain and underlying protocol similarly unified and generalized through additional opcodes, you could in fact model pretty sophisticated services on top of the original bitcoin design, no matter if it's a securities exchange (stocks, options, futures) or even completely anonymous deepweb-services, analogous to tor hidden services and freenet.

Note that none of this would necessarily need to touch the existing BTC infrastructure or codebase directly, rather it would probably be a fork of the original code base, and merely serve as a framework for future efforts to be implemented on top of this very infrastructure - just look at namedcoin and similar efforts, they're basically doing the same thing, but rather than generalizing the underlying design and extending it as required, they're forking the code base to come up with a hardcoded special case.

However, that doesn't mean that the whole concept wouldn't be feasible, you could provide arbitrary directories and services on top of the existing implementation with only very minor changes being required. All with the added advantage, of not having a single point of failure and not having an attack vector, that could be specifically regulated through governments/authorities.

There's a reason why marketplaces like silk road have been so successful - they cannot be easily regulated, because there's no single endpoint to shut down. For the btc community, early-adopters like silk road may be unfortunate, but overall the issue is the same with conventional fiat currencies: it's the use of a currency that makes it good or bad, not the currency itself - and in the meantime, these places create tons of liquidity.

Keep in mind that BTC is in many ways far superior to established currencies, especially from the standpoint of FOREX traders - simply because BTC transactions could actually contain algorithmic trading instructions with very minor changes, i.e. you'd end up with a "auto-trading" currency that could trade itself, just by transactions being executed by mining hardware.
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