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Crypto is an incredibly vast and ever-changing world. It is enough to say that there are more than 10,000 existing cryptocurrencies and that some of them also have derivatives such as futures and options.
The picture becomes even more complex if we consider the fact that each exchange offers its derivative products (Binance's Ethereum future might have different characteristics and costs than FTX's Ethereum future) and that there are also some futures listed on the CME.
It is therefore natural that such a vast world should give rise to doubts and questions as to which instruments are best suited to one's investment approach.
In this interview with Debora Rosciani, journalist and host for Radio24 (IlSole24Ore group), Italy’s top financial radio station, we'll try to shed some light on the situation by providing a comprehensive overview of the instruments currently available and some useful tips to help you decide which instruments to focus on.
By watching the interview you'll discover:
- The main crypto-related instruments currently available
- The differences between regulated and unregulated futures, which ones to prefer, and why
- When to trade real cryptocurrencies and when to opt for futures instead (alternative strategies such as Cash and Carry)
Regulated crypto markets and unregulated crypto markets. Which ones to use? We'll discuss this with Andrea Unger, the only four-time World Trading Champion.
Welcome back! Today we're going to be talking about cryptocurrencies. Cryptocurrencies represent a major trend and innovation, leading central banks to also work on their own digital currencies. We're talking about a highly engaging technology and an investment category in which we're wondering how much and in which manner we should invest.
When we talk about crypto perhaps not everyone has a clear idea of the financial structure behind this sector. Too many people think that it's an investment instrument identical to all the others.
I'd like to share with you a recent statement by Fabio Panetta, a member of the Executive Board of the European Central Bank, who said, "Crypto-assets don't just represent a high-risk speculative investment. They even pose a genuine threat to financial stability. So, we must take action to bring crypto-assets back into a clear regulatory framework that today is still missing." So, this appears to be an outright attack, if we can call it that, towards the 10,000 crypto assets currently in circulation and have a total value of $1.3 trillion.
But they lack the fundamentals. They're frequently used for illicit purposes, have high volatility in terms of price, and in many cases, Panetta said, are subject to embezzlement. So, we need to clarify what kind of market we're talking about and especially today we're talking about crypto trading. And obviously, we’re going to be doing that with Andrea Unger, the only one to have won the world trading championship four times in the Futures category. Andrea, welcome back!
Hello Debora! Good morning everyone!
So, the purpose of our webinar is to explain to our audience that cryptos allow for diversification but we need to be very clear about some aspects.
At this moment, moreover, crypto has captured the attention of investors who were previously interested in other markets, such as for example Forex. Today they're shifting towards this world.
Andrea, I’d like to ask you to help us better understand the difference between Bitcoin and its derivative instruments. Maybe you could also give us a hint about futures that are present on unregulated exchanges. Because as we move forward and, you know, as we get into these increasingly technical aspects, we realize more and more that cryptocurrency isn't the right investment for everyone unless you have studied it for several months before investing.
Yeah, and in which months it will still change because it's constantly evolving. However, yes, there are different markets. There is the crypto spot market, the cash, let’s say the real currency. And this is traded on the various exchanges that we know: Binance, Kraken, CoinBase, and the list goes on. Also, some of these exchanges offer derivatives related to the currency, just like there are derivatives on so many other things. There are the gold futures, there are crude oil futures, gasoline futures, wheat futures... And there is also a bitcoin future. And in addition to that, some exchanges also offer options. So, derivative instruments that most probably amplify the movements of the underlying assets while allowing for a much smaller exposure in terms of investment. They then are also leveraged. So, these exchanges offer a whole range of instruments that are related to the performance of the main currency.
However, unfortunately, and I say "unfortunately" as a trader, today most of these instruments are not accessible in some countries. This is due to a regulation that was introduces that prevents, for example, Binance from offering futures to investors from certain countries. This measure was taken based on the idea that Binance wasn't yet aligned with all the regulations, so to basically protect the investors. Maybe that will change. We'll have to wait and see.
I also say "unfortunately" because the Binance exchange offers an interface with the trading platform that I use, which is MultiCharts. And so, if there were still futures available, I could directly trade futures automatically as I do with all the other instruments that I use. Today I can only do that on the cash market, the traditional spot. This is perfectly fine however obviously I can only be a buyer, and not a seller for several reasons.
In addition, there is also the regulated market that has started offering instruments based on crypto. In fact, the CME offers a very limited range of regulated products that track the performance of Bitcoin and Ethereum. So, they are actual futures. I mean, just as there are futures of the Mini SP 500 and whatever we want, we have Bitcoin futures. The difference between these CME futures and the futures that are offered by Binance, FTX or whatever, is that the former are regulated by the CME and are quoted in U.S. dollars, so they are traded on a market where theoretically we are more protected compared to the "unknown" and at times even mysterious crypto market.
These futures also have different trends. Because the derivatives offered by crypto exchanges are very varied. Some are quoted in USDT, which is tied to the US Dollar, whereas some are even paid in crypto, and so on. So, there is a whole range of instruments that you should know about if you want to do anything in that area. And in this case we're talking about an unregulated market, while the CME, on the other hand, offers regulated instruments.
So to sum up, we have¬ the major currency (the cash market, the crypto), currency derivatives that are offered by the crypto exchanges; and currency derivatives (a few) that are offered by the CME's regulated market.
Andrea, if we were to come to a conclusion concerning this reasoning and outline the explanation that you’ve just given us, what would you say about when and how to use spot, futures, and which exchanges to trade on? What Unger does. Also keeping in mind my Radio 24 audience hasn’t reached this level of technicality yet. There's a great curiosity about crypto but I'm sure if they listened to your explanation concerning the complications around investing in this world maybe they would think a little bit more before venturing without a parachute into investing in crypto assets. So, when and how should we use spot, futures, on which exchanges, and what does Unger do?
Well, I hope that somebody will save their portfolio by listening to us. Because danger often comes when we expose ourselves to something bigger than ourselves. As for the CME futures, the regulated ones, I would tend to advise against trading them today. If the CME people hear me, they'll tell me to go to hell. But indeed, as I said on other occasions, they are too expensive in terms of margins and they have excessive spreads that don't allow for good tradability, in my opinion. So those who necessarily want to trade cryptos, but want to stay regulated, should forget it because those futures are not suitable in my opinion.
The futures of crypto exchanges, on the other hand, can definitely be used, but this leads to an important question: I doubt that anyone approaching the crypto world buys a crypto future to magnify the impact of its movement. Whoever wants to win the lottery with cryptos, buys crypto and he believes in it and holds it until he can't hold it anymore. So, he doesn't go directly to futures.
Those who want to go into futures or other instruments do so because they are either traders and want to trade, or they want to approach the crypto market with other kinds of more complex approaches. Not for pure trading but to leverage the internal dynamics of the market. So, to say Cash and Carry, for example. One buys a crypto and sells the related future and gets a mathematically certain gain, within a certain time horizon, facing a certain kind of risk that is more practical than real then, but that has to be considered of course. However, you must do some research here. So, I'd say unless you really want to do Cash and Carry or other complex structures, which have to be properly studied though, and not improvised because your cousin's friend told you about it, if that's not what you're interested in, just leave futures alone.
In my opinion, it's still better to stay with that naive and hopeful approach of catching the right crypto, buying it and holding it, and winning the lottery jackpot. More or less, you'll lose the money you put into it. You need to be aware of that at all times. If you put € 1,000 into the crypto market, whatever type it is, consider that € 1,000 lost. Then if it becomes a million, we'll be overjoyed for you. But start with the assumption that you can lose that € 1,000. Nothing will happen in your life if you lose that € 1,000. This is important.
It is like buying a lottery ticket for € 1,000, or many tickets for a total of € 1,000. It's clear that when the lottery is over you’ll throw them away if I didn’t win. The same thing applies to the crypto, in some ways. Recommending crypto futures… okay, but to do what? To do trading? If you want to trade, you'll have to have some kind of expertise. You can't improvise just for fun. You’ll have to do the research first. There are many things that can be convenient but you have to study first. You'll have to study well. And I assure you that it isn't a trivial subject. It’s a very interesting topic that can fascinate many people, but you can’t approach it with superficiality.
Wrapping up Andrea, what are we talking about when we talk about the Unger Method applied to systematic crypto trading, so let's end our talk with some so-called instructions for use.
Well, the Unger Method is, as I've always said, a common-sense method of developing trading systems and approaching the market. I do it numerically, and when I say "numerically" you shouldn't be afraid and think, "Oh my Gosh, now he's going to bring up NASA numbers".
It's a step-by-step method that plans what needs to be done. It verifies strategies based on the past trends to hypothesize how they may perform in the future, thus studying the market trends. This is for both traditional systems and other forms of investment where there are edges to be discovered in favor of the investor that must be evaluated and then schematized, to build a plan.
So the Unger Method takes all the pieces, lines them up and decides what needs to be done. It decides this before it puts money anywhere. When it invests, it already has everything clear about what must be done, let's say.
Let's close on this conversation with Andrea Unger who has shared with us the correct spirit, the right one, the one suitable for investing in this very complex market. But it's a constantly evolving market and I think that we can say that this will certainly not be the last of our conversations on this topic. Thank you and keep up the good work!
Thank you and goodbye everyone!
Before we say goodbye, here's a last service announcement. For all the people who'd like to delve deeper into the concepts we have explored during our conversation, you can order Andrea Unger's book, "The Unger Method," which is available on the Unger Academy website. You'll receive the book at your doorstep. It's free, and you only have to cover the shipping costs: so happy reading, everybody!
Need More Help? Book Your FREE Strategy Session With Our Team Today!
We’ll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.BOOK YOUR FREE STRATEGY SESSION NOW >>
Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.
I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems.
In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.
Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.
Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.