SALT LAKE CITY, UT – Maverick Trading, one of the top-ranked proprietary trading firms, recently approved Bitcoin as a trading instrument for its traders. Beginning January 2nd, 2018, traders in the firm’s Options division will be approved to trade Bitcoin options as well as Bitcoin futures.
Maverick Trading’s management will be outlining approved trading techniques and risk management procedures for its traders during an upcoming presentation to the entire firm. This special presentation will highlight several stable, defined risk techniques for the firm’s traders to profitably trade Bitcoin. Bitcoin options will be approved for all traders and Bitcoin futures will be approved on a case-by-case basis.
The firm made this decision after careful consideration, responding to both inquiries from the general public as well as requests from the firm’s existing traders. Prior to this move, Maverick’s management had demurred, citing a lack of price discovery, liquidity, and safety. Bitcoin’s recent acceptance at the Chicago Mercantile Exchange and the Chicago Board Options Exchange was the final factor that led management to approving Bitcoin for Maverick Trading’s traders.
In an e-mail to the firm, Robb Reinhold, CEO and Head Trader at Maverick Trading outlined the reasons behind the firm’s initial reticence as well as the reasons for the change in policy. In part, the e-mail stated:
Price discovery is everything in the world of trading. Unless a trader knows exactly where they can exit the trade, risk management and proper trading techniques are not possible. In those conditions, a trade becomes a gamble. The crash of 2007-08 has probably the best example of what not having price discovery can do. In the early 2000’s, companies sold new products called CDS (Credit Default Swaps) and CDO (Collateralized Debt Obligations) that didn’t trade on any exchanges. Prices were negotiated in the brokerage desk to brokerage desk whenever someone wanted to buy or sell, creating a gray market. In order to “find out” what your CDS or CDO was worth, you would have to call around to find a buyer and the price they were willing to pay. Once the real estate and stock markets crashed, CDS and CDO sellers found out there were no buyers and technically these assets were worth $0 at the time. Price discovery is the most important thing which is why we focus on trading on major exchanges.
Liquidity goes hand in hand with Price Discovery. Price discovery shows you the current market price but liquidity is about how many market participants there are. You need both to be able to move in and out of a position. One of the early things (still a smaller problem today) that plagued cryptocurrency buyers and sellers was the delay between the transaction on the screen and delivery of the product. The futures market gives us a great way to trade Bitcoin since futures are a derivative product where there is technically no transfer of ownership of the security. Because of this, we only have to worry about the entry and exit price of the trade and not on any delays for the delivery of the product. The Chicago Board of Options (CBOE) and Chicago Mercantile Exchange (CME) are both publically traded exchanges with a very long and stable history of a fair marketplace. I expect the volume on the futures contract to be comparable to the volume on the Bitcoin itself.
With regard to safety, over the history of Bitcoin and other cryptocurrencies, we have heard reports of Bitcoins being “lost” or stolen. Just a few weeks ago, on December 7th, 2017, more than $70 million Bitcoin (4,700) were stolen from a digital currency platform named NiceHash. https://money.cnn.com/2017/12/07/technology/nicehash-bitcoin-theft-hacking/index.html These exchanges handle transactions and hold bitcoins for customers. While it was not disclosed who owned the Bitcoin, we can assume it was spread across a wide swath of NiceHash customer accounts. With the laws being so new around cryptocurrencies, there are no mechanisms in place for victims to pursue recompenses. This can leave bitcoin holders literally left holding an empty bag. This is why we have only approved the trading of Bitcoin futures on the CBOE and CME for our traders. There is just too much unknown risk concerning safety and security of these new exchanges that have popped up overnight. We do not allow the actual purchase of Bitcoin in our capital accounts.
Reinhold expanded on the topics within the e-mail. “One of the problems with Bitcoin and other cryptocurrencies is there is a wide range of prices available at different exchanges where people can buy and sell cryptocurrencies. A trader can get three different quotes, hundreds of dollars apart, at three different exchanges. A trader has a range of value but won’t be sure of the price it’s actually trading for in the market. December 10th was the first time Bitcoin futures traded at the Chicago Board of Options Exchange (CBOE) and December 17th on the Chicago Mercantile Exchange which should help with the gap between prices in the bitcoin exchanges.
“Before the futures contracts, there was really no way to short Bitcoin. The inability to short an instrument actually exacerbates market swings. On the way up, without a market maker able to go short to cover incoming orders, the supply is unnaturally constrained, driving prices higher than expected. On the way down, there may be wide gaps between bids, causing the price to crash faster than what is common in a smooth running market.”
Jon Frohlich, COO of Maverick Trading, discussed the firm’s plans on managing the risk of trading Bitcoin. “Bitcoin’s price action has been wild. Really, it’s been fun to watch and read the buzz that it’s generated. When we finalized plans to move forward with allowing our traders to trade Bitcoin, risk management was first in our minds. We’ve highlighted existing trading techniques that we can use to trade it, but we’ll also be reiterating position sizing and stop-loss guidelines to our traders. Our in-house risk managers have been fully briefed to backstop our traders. Based on the historic performance of our traders, we expect them to adapt easily.”
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About Maverick Trading
Founded in 1997, Maverick Trading is a private proprietary trading firm, focused on position and swing trading options in equities and exchange traded funds, headquartered in Salt Lake City, Utah.
Additional information on Maverick Trading and proprietary trading can be found at www.mavericktrading.com.
Additional information on Maverick Trading’s FX Division can be found at www.mavericktrading.com/fx.
Media Contact: Jon Frohlich; 801-652-7180; firstname.lastname@example.org