Dmitry Koval, founder of Crix.io, a cryptocurrency trading platform, said in a recent interview: “Our mission is to contribute to the community and ecosystem by creating the best niche products such as exchange-traded futures contracts suitable for hedging and high-leveraged trading.”
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Mathematical Bitcoin Trading With Crix
In the cryptocurrency world, where volatility can swing at even circumspect news, precision and probability must co-mingle. To gather a behavioral understanding of cryptocurrencies — to discern its movement within a probabilistic range — requires a significant degree of analytical depth predicated on vital access to historical information.
“Real mathematics stands behind many aspects of trading today. This includes the volatility modelling and the Value at Risk method we use at our platform,” said Koval.
At Crix they analyse hundreds of time periods back to then help determine the end of the next period within a certain range and probability. Like the guess of a coin-flip, understanding the percentages are a guide to making an educated assessment.
“With bitcoin, it is way more complex, but the principle is the same,” said Koval, adding, “We use a two-stage approach to determine price limits.”
In the first stage, the historical volatility of the BTC/USD market is assessed to find the mathematical function that best corresponds to the volatility data. The information is then calibrated based on the historical data sample.
Next, a Value at Risk analysis is run on the out-of-sample historical data set in order to predict a single-period price range within a given accuracy.
“Both volatility modelling and VaR techniques are widely used these days for portfolio risk management on different markets,” said Koval.
Of the cryptocurrency varieties Crix does support — Bitcoin, Litecoin, Dash, Namecoin, Doge, Peercoin and Nextcoin — there is a noticeable gap, however, ether.
Koval said, “We are going to open ETH to BTC trading at our spot section in the nearest time. We are going to introduce futures contracts as well.”
The only challenge for futures contracts is the historical data, explained Koval.
“We need 500 to 1,000 periods back to get good results for the model.”
Crix’s flagship product is its futures platform. Most efforts in development and marketing, according to Koval, go toward this part of Crix’ trading system.
However, the Crix platform also offers a spot section where users can locate benchmark prices on alternative coins (altcoins), allowing people to exchange them to bitcoins and trade futures collateralised in bitcoins without a need to use another provider.
It’s simple, convenient and honest.
“The shorter contract term at Crix (three hours, 24 hours) is the trade-off for totally mitigated slippage risk and full transparency of all the calculations,” said Koval.
“We don’t have any proprietary parameters which are changing throughout the session and therefore, no manipulation is possible by design.”
Furthermore, margin calls are prevented by setting particular trading rules.
Prices throughout the session, whether for a three hour or 24-hour contract, are limited to model-predicted limits so a trader cannot place an order priced outside of these limits, said Koval.
“Therefore, none of the traders can lose more than their initial collateral during the session.”
Visit Crix.io for more information and to test the company’s platform.
Images courtesy of Wall-Pix.net, Crix.io.
