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Maverick Trading Approves Bitcoin Trading for Firm's Traders

Traders Magazine Online News, January 4, 2018

John D'Antona Jr.

Maverick Trading, a proprietary trading firm, recently approved Bitcoin as a trading instrument for its traders. Traders in the firm's Options division are now 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 MBS (Mortgage Backed Securities) and CDO (Collateralized Debt Obligations) that didn't trade on any exchanges. Prices were negotiated brokerage desk to brokerage desk whenever someone wanted to buy or sell, creating a gray market. In order to "find out" what your MBS 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, MBS 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 publicly 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.

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