Hi guys, I'm a bit new in the bitcoin, stock or commodity trading market and searched some information to make a more profitable investment.
Since a few weeks I'm experiencing and trading a bit and I was wondering if there is a correlation between bitcoin and stocks/commodities. Further research made me come up with an idea.
How I came to the idea of using the correlations to make a more profitable investmentIf I'm right there is some positive correlation between e.g. the gold price & the btc price and a negative corelation between e.g. stocks in general & the btc (or gold) price
This wouldn't give any problems as long as you use dollars and go long/short on the commodity/stock price in compare to that $.
But lately I found a website
https://1broker.com/ that provides another service. You can go long/short (if you could even call it like that) on the price of commoditities and stocks in $ with bitcoins.
So if you would go long with 100 btc on e.g. GOOG/USD with leverage of 10 and GOOG goes up 5% you would receive 150 btc (instead of the amount of bitcoins equal to 150% of the value of bitcoins when you went long)
First of all it sounds weird for me they even can provide this service without any risk. I guess they hope they will have around the same amount of bitcoins in long/short positions and a relatively low upper limit for positions (all lower than 1000 btc). So I don't want to say bad things about them, I just think they take some risks but to tell the risks they take have a too big chance of getting them in problems I don't have enough experience. From all the information I could get they have been a very reliable broker till today. Their limits slightly increased and their spreads went down recently wich convinced me to open an account there.
I was looking for a good investment and since I found something was wrong with the 1broker system I thought it would be possible to take advantage of that.
Like I mentioned before I think there are some correlations between bitcoin on the one hand and stocks/commodities on the other hand.
* positive correlation
BTC-price & gold price
* negative correlation
BTC-price & price of stocks in general
As an example I will work further with the first one, but for the 2nd one the same principle counts:
In case we assume 100% correlationLet's say you start with 4000 $ and a current
BTC-price of 400$. You buy 10 btc with them on a traditional exchange (or you use the bitcoins you already own).
We will go long on gold with a leverage of 10. For simplicity I will only examine 2 possibilities and give both of them a 50% chance
1.
BTC goes up 50% to 600$ while gold goes up 5%.
2.
BTC goes down 50% to 200$ while gold goes down 5%.
When we close our position we will receive:
1. 15 btc * 600$ = 9000$
2. 5 btc * 200$ = 1000$
with 50% chance each of them happening this gives an average of 5000$
The difference with the 4000$ that you used to take the position na be explained because of the correlation.
In case we assume 0% correlationIn case there would be no correlation between the
BTC-price and the gold-price you would (in this simplified example) get 4 possibilities
1.
BTC goes up 50% to 600$ while gold goes up 5%.
2.
BTC goes down 50% to 200$ while gold goes down 5%.
3.
BTC goes up 50% to 600$ while gold goes down 5%.
4.
BTC goes down 50% to 200$ while gold goes up 5%.
This would give you:
1. $ 9000
2. $ 1000
3. $ 3000
4. $ 3000
On average this would give you back the invested $ 4000
General conclusionSo with the assumed 100% correlation you can avoid the last 2 possibilities (one of them going up when the other goes down) and you get on average $ 5000 back
Of course this 100% correlation is bullshit but I used it to explain my main idea. There is a chance step 3 and 4 would happen but as long as their combined chance is lower than 50% (in other words, as long there is some positive correlation) you will on average make a profit.
One other thing I wanted to say, the correlation will in reality probably be closer to 0 than to 100% you would get closer to the 2nd assumption (0% correlation), this means that around 3 out of 4 times you'll have a loss in this case but in 25% of the times you'll make a huge profit. But this problem can be surrounded by diversing your investment (e.g. also shorting some different stocks, not only go long on gold but also on silver...).
You can see 2 possibilities of what will happen in the (near) future:
1. a recovering economy and increasing trust in the economy
2. a declining economy, economic disasters, decreasing trust in the economy
To invest in the first buying stocks and avoiding bitcoins seems the best. If you think the 2nd thing will happen investing like I described in this topic on
https://1broker.com/ would be a good idea.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
I would be glad if someone could provide me some more information about the previous discussed correlations (I just assumed them on the basis of the logic that stocks do good when there is a lot of trust in the economy and that bitcoin and gold do better when there is some panic and less trust in the global economy)
Please also tell me what you think of my basic idea or if I made some reasoning faults somewhere
* I will work further on this topic tomorrow
If for some reason you want to support me my btc address is : 13hFdckytA2UZuoZqXNLUE8wtJ2CMgg2xY
