5 ms·

Meaning it's delta one. That is, it moves in near perfect tandem to the spot price.

deleted 6y ago
[deleted]
askmike 6y ago
To make sure it actually does move near perfect tandem there is a new interest element that will incentivize the market to have the perp trade close to underlying.
smabie 6y ago
Technically, it's not d1 (just like how futures aren't actually d1). And seeing that annualized % basis in swaps is so high (sometimes as high as 600%), you really need a good rate model to trade these things. The retail crowd doesn't realize this and is significantly disadvantaged compared to sophisticated market makers with rate models. tl;dr ignoring swap rates is very dangerous
- hntrader 6y ago
  Would the costs associated with holding perps differ substantially from getting exposure (in the same trade direction) through traditional futures? In perps we compensate the market through funding, and in futures we do so through term structure (ie the futures price exceeding spot). Annualized rates can be that high during periods of excess demand for perps but on average they're much lower. Agreed that it's important to take them into account.
  - smabie 6y ago
    You usually find that perps and short term futures have higher rates than longer term futures. A very common strategy is to buy longer term futures and sell shorter term ones. If you're looking for cheap delta, longer term futures are almost always the way to go. They are a lot less liquid, though. retail has a strange fascination with swaps. I have two theories for why this is: 1) they are easier to manage (you don't need to roll them). 2) they look cheaper on am absolute basis than long term futures. But if you want long delta, go with long dated futures. If you want short delta, go with swaps. The extra juicy trades come from buying long dated futures on one exchange and selling high rate swaps on another. However, you need a lot of margin or a sophisticated system to manage the risk.
    - hntrader 6y ago
      Very interesting to hear about that arb, and the reasons it comes about and persists makes a lot of sense. In addition to the reasons you mention (retail cluelessness, margin requirements, risk systems), these are some other reasons I can think of as to why the arb persists over time: - Perps are popular on Bitmex/Bybit, and futures are popular on Ok and Huobi (even though the latter has perps, they're relatively illiquid). So there's a cross-exchange dimension which adds more difficulty and risk in performing the arb. - Counterparty risk of keeping funds on an exchange increases the required compensation for performing the arb, which allows it to persist.

deleted 6y ago

[deleted]

To make sure it actually does move near perfect tandem there is a new interest element that will incentivize the market to have the perp trade close to underlying.

smabie 6y ago

Technically, it's not d1 (just like how futures aren't actually d1). And seeing that annualized % basis in swaps is so high (sometimes as high as 600%), you really need a good rate model to trade these things. The retail crowd doesn't realize this and is significantly disadvantaged compared to sophisticated market makers with rate models. tl;dr ignoring swap rates is very dangerous

hntrader 6y ago
Would the costs associated with holding perps differ substantially from getting exposure (in the same trade direction) through traditional futures? In perps we compensate the market through funding, and in futures we do so through term structure (ie the futures price exceeding spot). Annualized rates can be that high during periods of excess demand for perps but on average they're much lower. Agreed that it's important to take them into account.
- smabie 6y ago
  You usually find that perps and short term futures have higher rates than longer term futures. A very common strategy is to buy longer term futures and sell shorter term ones. If you're looking for cheap delta, longer term futures are almost always the way to go. They are a lot less liquid, though. retail has a strange fascination with swaps. I have two theories for why this is: 1) they are easier to manage (you don't need to roll them). 2) they look cheaper on am absolute basis than long term futures. But if you want long delta, go with long dated futures. If you want short delta, go with swaps. The extra juicy trades come from buying long dated futures on one exchange and selling high rate swaps on another. However, you need a lot of margin or a sophisticated system to manage the risk.
  - hntrader 6y ago
    Very interesting to hear about that arb, and the reasons it comes about and persists makes a lot of sense. In addition to the reasons you mention (retail cluelessness, margin requirements, risk systems), these are some other reasons I can think of as to why the arb persists over time: - Perps are popular on Bitmex/Bybit, and futures are popular on Ok and Huobi (even though the latter has perps, they're relatively illiquid). So there's a cross-exchange dimension which adds more difficulty and risk in performing the arb. - Counterparty risk of keeping funds on an exchange increases the required compensation for performing the arb, which allows it to persist.