In the cryptocurrency world, many investors and traders tend to focus on the prospect of lavish profits while neglecting certain aspects of risk management.

But, as the FTX case shows, one should never let one's guard down when trading in an unregulated market like cryptocurrencies.

In this interview with Debora Rosciani, a journalist at Radio24, part of the IlSole24Ore group and Italy's leading financial radio station, Andrea gives some valuable advice on how to best manage the risk associated with an exchange’s default.

These tips apply not only to the crypto world but also to traditional markets. Indeed, proper risk management is a crucial element for anyone involved in trading or investing.

Don't miss this interview with lots of valuable tips! 😉

Transcription

Introduction

Debora Rosciani
What does the case of FTX, the recently failed cryptocurrency exchange, tell us? Could it have been avoided? We’ll talk about it with Andrea Unger, the only 4-time World Trading Champion.

Welcome back. Today we're going to be talking about scams, in particular financial scams.

The aim is to make the public aware of the main scams to which so many small savers have fallen victim over time and which are still widespread in the world of investment, especially in the world of trading.

Although more and more is written and discussed, the number of victims of these situations is constantly increasing.

So, what can we learn from the past? How can we protect ourselves to avoid these scams?

We discuss this with Andrea Unger, the only person to have won the World Cup Trading Championships four times in the Futures category.

Andrea, welcome back.

Andrea Unger
Good morning, everybody. Hi Debora.

The great potential of cryptocurrencies

Debora Rosciani
Andrea, many people believe that there is great potential in the cryptocurrency world. You know, in the past, it was Forex, and then the world of CFDs, and now we have cryptocurrencies.

So, of course, all these financial assets are not "intrinsically" scams. They are assets that financial traders, just like you, work with on a daily basis. And they are the big news of the last few decades. However, for many people, they somehow represent a great way to make money quickly and effortlessly.

The case of the FTX crypto exchange was the most emblematic because until a few weeks before the bankruptcy of this major cryptocurrency brokerage platform, this company had an outstanding reputation even among financial operators.

Then it was just enough for a major investor to exit this business, and everything collapsed like a house of cards. And this is just to briefly summarize what happened. So, what does this story tell us, from your perspective?

Andrea Unger
Well, this story, I mean, the first part, the one of the vast potential, is more about how to break through… because the big interest in Forex and CFDs was actually related to the high leverage these instruments allowed. However, then the leverage was limited to 30:1, in order to avoid overexposure.

You know, people always want to look on the bright side. "If I trade with such leverage, I’ll gain so much," they say. Yes, but what if it goes against you? And I mean, that's what actually happened, unfortunately. I remember especially the case of the Swiss Franc, where the cap was lifted, and there was a bloodbath among traders and also among institutions that couldn't cover the losses caused by the excessive use of leverage.

Today we’re talking about cryptocurrencies. And in fact, these potential gains people are talking about, in my opinion, are just no longer there, at least to the extent that they are being told. I mean, they were there, but in the past. It was a huge opportunity for those who were there, but to that extent, it’s not gonna happen again.

The FTX case

And even if Bitcoin were to get to 500,000, as some people say – just do the math, from it's current value to 500,000, what does that mean compared to 0.01 to the current value? I mean, those are very different ratios.

Having said that, the second case you mentioned, the FTX failure. Well. FTX was part of the world of crypto. It was one of the reference exchanges, and unfortunately at the level of the exchange’s respectability, I would have fallen for that as well.

I didn't have an account with FTX simply because I hadn't arranged to do so. I wasn't interested in using FTX at the time, so I hadn't opened an account.

But still, if l would have wanted to do it, I would have looked to see what information was available about FTX. I would have looked to see what it was, and I would have fallen for it. I would have definitely sent the money because I would have thought it was a reputable company, and then I probably would have lost everything I sent them.

I have had a similar case happen to me in the past, not in the crypto world, but in the futures world, where the broker PFG Best, which was also part of the licensed brokers at the Trading Championship, went bankrupt because of a fraud by its owner, the president, who then went to jail despite his advanced age… because in America you can go to jail and you go to jail if you’re a fraudster. I think he's actually still there today.

And in this case, I also lost a considerable amount of money. I recovered a small part thanks to the Class Action suits that were filed there because it was a regulated market. While a small portion that was in the Forex market, which is not regulated, was lost forever.

Anyway, FTX is an unregulated market. So there isn’t much to do there. And I would have lost my money too because it looked perfect. I mean, FTX looked good, so the deception behind it didn't come through or whatever... What exactly happened is going to come out now. I mean, the idea is that the money was probably used elsewhere and perhaps also misused, so the money was no longer enough when, just as you were saying, there was a substantial outflow of capital.

Proper risk management tips

But what can be done in such a case? It's not that you should say, "no, don't do it, don't open crypto accounts because you’ll lose all your money." No, because I repeat, everybody is free to do what they want, and if somebody chooses a supposedly good exchange, you can’t blame them for that choice.

Well, it would have been your own fault if you had put too much of your capital there, as happened to me with the American broker that went bankrupt. If I had given all my money to that broker, I would have been in big trouble indeed. I suffered a loss that was certainly large, but a loss that didn't ruin me. It left me standing, because it was just a part of my capital.

That’s the same situation before the default of FTX. If I had decided to open an account there, I would have sent only some of my capital there to take advantage of FTX’s potential.

I mean, even if I had imagined that I could have doubled my money within a year – and I say "double" just to keep it mathematically simple, so to double the amount I invested there – still I wouldn't have sent all my capital there just to double the amount. No, I send X%, 5%, 10%, 20%, I mean, it really depends on the risk profile because the risk is always there, and if I know that in case I lose that, I'll still be standing.

I'll feel sorry, I'll feel angry, or whatever you want, but the day after tomorrow I'll still do what I'm doing today, with no financial problems.

The tendency to overexpose

If you overexpose yourself with a broker or with any investment, there is a risk. Because the money that I put down on a horse, if the horse goes lame, we are in trouble. And that, unfortunately, is something that is not easily perceived. But it's very important, in this case, because that would have saved the ones who di lose everything.

Debora Rosciani
This is a big issue. And it’s not just about investing in innovative financial instruments.

I will tell you that recently, for example, in radio broadcasts I've talked a lot about investments, and more in particular, about some operations made by the Italian Treasury, the "BTP Italia" and "BTP futura" bonds, since they are operations that according to the Italian Ministry of Economy are aimed at retail investors and have the goal of bringing Italian savings back to sustain the public debt of Italy. Well, the mere fact of talking about it in so many broadcasts led our audience to feel encouraged to invest in these government bonds.

And some people have even told us that, as a result of our broadcasts, they invested a large part of their savings in a single government bond.

We’re never tired of recommending maximum diversification of investments, and unfortunately, people always perceive the opposite.

So, if that’s a problem that manifests itself in a relatively calm and prudent investment like the Italian government bond, you can imagine what happens when people are tempted by other financial assets, which have much greater return promises. I mean, they are so tempted to put everything there! So that’s really a very dramatic issue, dare I say.

How to manage phone calls offering investments

Look, let's be careful, as a final message, because that seems to me to be the primary recommendation that we should give to these cursed calls that come to us from call centers either in London or Albania or wherever. I mean, when these people call us and propose us the most interesting investment of the century is a must, that should always make us suspicious.

Andrea Unger
Exactly. I wouldn't even waste time on that. Now they've even equipped themselves with automatic responders, so I always immediately hang up. I mean, they're like advertisements or cell phone marketing calls. As soon as you hear who they are, you hang up.

The same thing here. If someone calls you to propose trading and things like that, hang up immediately! You might say hello if you don't want to seem rude, but hang up, because there’s nothing beneficial in that proposal.

It can't be. It can't be because if they were able to do what they’re promising, then they wouldn't be standing there promising it to you, but they’d be multi-billionaires. They probably would have solved the problem of world hunger because if we do the math, we really come up with incredible figures.

So I really hope that somebody who sees this interview will be convinced of this. I mean, that would be quite an accomplishment. I’m not saying that everybody wants to believe that. Because like I said before, sometimes I cut the figure of a frustrated person who doesn't know what's behind it. But, if even one person is saved here, I’m glad to know they somehow escaped a scam thanks to this interview, and that's worth it.

The correct approach to trading

Debora Rosciani
Andrea, now we’re coming to the end of our interview. Let's now explain what the Unger Method is. In other words, what is the right way to approach the world of online trading? Even though it’s a market, a world, a field that is certainly mature and populated by qualified professional traders. In reality, there are also a number of traders in this sector that trade following rules that are just their own. We can classify them in this way. Above all, there still is the belief that has been repeated throughout this interview, which is that just by taking a few steps in this world you can get rich easily.

So, let's repeat what are also the criteria for your business, namely, the fundamental pillars of your business.

Andrea Unger
Yes, I initially chose systematic trading because I didn’t understand what was going on in the markets.

So, I chose to let the computer work for me and then rely on algorithms to do my work. The algorithms are based on my own decisions. So, I tell the computer what to do, and I do it based on research made on historical market data.

What I do is I take the historical data, study what works in the various markets, and how those markets move, and then translate that into a system that automatically does what I want it to do.

All of that means that the operation that I set up, but that all professionals set up in some way, is the reaction to what’s happening, to what you see.

Mind you, there is no one who can predict the market or knows in advance where the market is going. Everyone determines based on certain things that statistically, if the market does this, then it will do that.

Statistically, it isn’t 100%. But you can build your operation on that basis. If the market usually goes up for 2 days, then I’ll enter a position for a market that goes up. But be careful. If I’m wrong and the market starts to fall, I’m going to close the trade with a loss because I was wrong.

You know, "wait and hope" is another one of those things to avoid in the stock market or "until you close the trade, you haven't lost." No! If you have a loss, you have a loss, period.

And so, the Unger Method is nothing more than a step-by-step approach to developing these strategies. From studying to creating the rules, to implementing the system, along with so many other systems, because, as you said earlier, diversification is the key.

No matter how strong it is, a single horse can never get to where many horses can get by helping each other.

So, many strategies and many systems. But don't think this is NASA stuff. These are very trivial systems and written in an even more trivial programming language, so anyone can build these kinds of systems if they approach them step by step with the humility and the study necessary to understand these basic concepts clearly, right?

Because to say that it's super simple would be a bit of an exaggeration. And it would also detract from what I’m doing. But you certainly don't need a scientist to understand how markets work from that perspective.

And hey, it can also be fun to build these systems. I mean, I enjoy it, otherwise, I wouldn't be doing it at some point either because I’m still doing it today after 20 years.

Debora Rosciani
Andrea, thank you for this interview, and, of course, I wish you the best.

Andrea Unger
Thank you, Debora, goodbye everyone.

Debora Rosciani
Before we say goodbye, here is one last piece of information. For those interested in the Unger Academy and who would like to explore further the concepts we’ve listened to in this interview, Andrea's book on the Unger Method can be ordered from the Unger Academy website. It’s free and you only have to pay the shipping costs. So, enjoy the book!

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