Wow... I thought this was satire. (when talking about trading) 'We don't tend to have stop losses, we don't see those as very good risk management tools' No wonder they're bankrupt...
SBF loaned her company 10 billion to trade without basic risk management for trading.
She’s not wrong, stop losses are pretty pointless if you’re running a high volume market maker that is in theory constantly doing tons of volume and reacting to updates.
They’re also super dangerous if you have gigantic positions
Anyways they wouldn’t save you from collateralizing your loans with shitcoins, taking leveraged bets with money that isn’t yours, having super high exposure to UST and/or Luna, exposed to hackable defi products. Harder things that “having a good sense for risk” usually entails thinking about.
The real red flags are claiming she doesn’t use math and that she’s never lost a lot of money on a trade despite doing largely human informed trading for size…
Fair enough. I'm not familiar with that kind of trading I'm only familiar with basic day trading such as momentum and swing trading which stops have been very helpful for me personally. I imagine when you're making a market and are moving massive volume the rules are different and as you mentioned would require a lot of math like maybe trying to be delta neutral.
For a bit more color, as stop makes sense for you since you’re not there 24/7 making decisions.
But if you are, there’s no reason to just auto trade a position away. The decision of “what to do when price hits X” is a function of many things instead of price, and you’re better off dynamically deciding.
Consider that you could already implement a stop as a 24/7 trading firm anyways
>The real red flags are claiming she doesn’t use math and that she’s never lost a lot of money on a trade despite doing largely human informed trading for size…
For the peak crypto years it was almost impossible to lose money AS AN EXCHANGE. These clowns really thought they were on fire, and not just in position that random moves could be winning strategies.
> For the peak crypto years it was almost impossible to lose money AS AN EXCHANGE.
She wasn't running an exchange. You're confusing Alameda, the trading outfit, with FTX, the exchange. She was the CEO of Alameda. She was not the CEO of FTX.
Prices are not continuous. Stop loss orders are suicide pacts, especially in illiquid markets. They have little to no role in a coherent risk management strategy.
They're primarily marketed to unsophisticated retail traders as providing protection that they can't provide-- something equivalent to a free put.
In fact, some time back their firm was sued for IIRC essentially manipulating markets to trigger traders stop loss orders in order to swallow up trades at unreasonable prices.
Tiny traders in the largest of markets can potentially get away with using stop losses and not get burned too badly too often, but none of the cryptocurrency markets really qualify as that.
She was referring to the type of math that she did to earn a math degree, which I suppose could be true. My math degree did not require any of the kind of math I assume they do at these kinds of exchanges, although I also assume that the whole branch of math that starts getting into modeling and analysis would be very useful in these sorts of companies.
It's funny. Banks are widely perceived as corrupt; and lo and behold, the alternative systems to replace banking have been dragged by their heels through Banking 101.
Edit: Also funny, was the unrelated Matt Damon TV ads about how "Fortune Favors the Brave." Obviously it comes from Caesar, but it was also used in Charles Dickens's Little Dorrit by a character encouraging what later turned out a Ponzi scheme...
FTX being corrupt doesn't automatically mean banks are not corrupt. Just 14 years ago, the actions of banks brought most of the world to the precipice of financial collapse. FTX and Alameda depositors will lose their money. During the GFC, almost everyone lost their money.
>FTX being corrupt doesn't automatically mean banks are not corrupt.
That's not what OP said. OP highlighted the fact that a lot of the crypto space lambasts the traditional banking system as being wholly corrupt, despite a lot of the crypto space itself being equally corrupted in the same ways.
Edit: "People who live in glass houses shouldn't throw stones", basically.
FTX WAS a corrupt bank/betting parlor. Cryptocurrency is about self custody and full transparency. This is what blockchains allow. FTX was people depositing money in SBF's personal piggy bank. FTX has nothing to do with crypto, other than the fact that it allowed people to bet on crypto prices.
Too often banks are perceived as corrupt due to risk management practices, like not giving mortgages to poor people who go on about how their rent is more than their mortgage.
