Zero Cost Option Strategy Using Puts & Calls for Hedging ...

Everything You Always Wanted To Know About Swaps* (*But Were Afraid To Ask)

Hello, dummies
It's your old pal, Fuzzy.
As I'm sure you've all noticed, a lot of the stuff that gets posted here is - to put it delicately - fucking ridiculous. More backwards-ass shit gets posted to wallstreetbets than you'd see on a Westboro Baptist community message board. I mean, I had a look at the daily thread yesterday and..... yeesh. I know, I know. We all make like the divine Laura Dern circa 1992 on the daily and stick our hands deep into this steaming heap of shit to find the nuggets of valuable and/or hilarious information within (thanks for reading, BTW). I agree. I love it just the way it is too. That's what makes WSB great.
What I'm getting at is that a lot of the stuff that gets posted here - notwithstanding it being funny or interesting - is just... wrong. Like, fucking your cousin wrong. And to be clear, I mean the fucking your *first* cousin kinda wrong, before my Southerners in the back get all het up (simmer down, Billy Ray - I know Mabel's twice removed on your grand-sister's side). Truly, I try to let it slide. I do my bit to try and put you on the right path. Most of the time, I sleep easy no matter how badly I've seen someone explain what a bank liquidity crisis is. But out of all of those tens of thousands of misguided, autistic attempts at understanding the world of high finance, one thing gets so consistently - so *emphatically* - fucked up and misunderstood by you retards that last night I felt obligated at the end of a long work day to pull together this edition of Finance with Fuzzy just for you. It's so serious I'm not even going to make a u/pokimane gag. Have you guessed what it is yet? Here's a clue. It's in the title of the post.
That's right, friends. Today in the neighborhood we're going to talk all about hedging in financial markets - spots, swaps, collars, forwards, CDS, synthetic CDOs, all that fun shit. Don't worry; I'm going to explain what all the scary words mean and how they impact your OTM RH positions along the way.
We're going to break it down like this. (1) "What's a hedge, Fuzzy?" (2) Common Hedging Strategies and (3) All About ISDAs and Credit Default Swaps.
Before we begin. For the nerds and JV traders in the back (and anyone else who needs to hear this up front) - I am simplifying these descriptions for the purposes of this post. I am also obviously not going to try and cover every exotic form of hedge under the sun or give a detailed summation of what caused the financial crisis. If you are interested in something specific ask a question, but don't try and impress me with your Investopedia skills or technical points I didn't cover; I will just be forced to flex my years of IRL experience on you in the comments and you'll look like a big dummy.
TL;DR? Fuck you. There is no TL;DR. You've come this far already. What's a few more paragraphs? Put down the Cheetos and try to concentrate for the next 5-7 minutes. You'll learn something, and I promise I'll be gentle.
Ready? Let's get started.
1. The Tao of Risk: Hedging as a Way of Life
The simplest way to characterize what a hedge 'is' is to imagine every action having a binary outcome. One is bad, one is good. Red lines, green lines; uppie, downie. With me so far? Good. A 'hedge' is simply the employment of a strategy to mitigate the effect of your action having the wrong binary outcome. You wanted X, but you got Z! Frowny face. A hedge strategy introduces a third outcome. If you hedged against the possibility of Z happening, then you can wind up with Y instead. Not as good as X, but not as bad as Z. The technical definition I like to give my idiot juniors is as follows:
Utilization of a defensive strategy to mitigate risk, at a fraction of the cost to capital of the risk itself.
Congratulations. You just finished Hedging 101. "But Fuzzy, that's easy! I just sold a naked call against my 95% OTM put! I'm adequately hedged!". Spoiler alert: you're not (although good work on executing a collar, which I describe below). What I'm talking about here is what would be referred to as a 'perfect hedge'; a binary outcome where downside is totally mitigated by a risk management strategy. That's not how it works IRL. Pay attention; this is the tricky part.
You can't take a single position and conclude that you're adequately hedged because risks are fluid, not static. So you need to constantly adjust your position in order to maximize the value of the hedge and insure your position. You also need to consider exposure to more than one category of risk. There are micro (specific exposure) risks, and macro (trend exposure) risks, and both need to factor into the hedge calculus.
That's why, in the real world, the value of hedging depends entirely on the design of the hedging strategy itself. Here, when we say "value" of the hedge, we're not talking about cash money - we're talking about the intrinsic value of the hedge relative to the the risk profile of your underlying exposure. To achieve this, people hedge dynamically. In wallstreetbets terms, this means that as the value of your position changes, you need to change your hedges too. The idea is to efficiently and continuously distribute and rebalance risk across different states and periods, taking value from states in which the marginal cost of the hedge is low and putting it back into states where marginal cost of the hedge is high, until the shadow value of your underlying exposure is equalized across your positions. The punchline, I guess, is that one static position is a hedge in the same way that the finger paintings you make for your wife's boyfriend are art - it's technically correct, but you're only playing yourself by believing it.
Anyway. Obviously doing this as a small potatoes trader is hard but it's worth taking into account. Enough basic shit. So how does this work in markets?
2. A Hedging Taxonomy
The best place to start here is a practical question. What does a business need to hedge against? Think about the specific risk that an individual business faces. These are legion, so I'm just going to list a few of the key ones that apply to most corporates. (1) You have commodity risk for the shit you buy or the shit you use. (2) You have currency risk for the money you borrow. (3) You have rate risk on the debt you carry. (4) You have offtake risk for the shit you sell. Complicated, right? To help address the many and varied ways that shit can go wrong in a sophisticated market, smart operators like yours truly have devised a whole bundle of different instruments which can help you manage the risk. I might write about some of the more complicated ones in a later post if people are interested (CDO/CLOs, strip/stack hedges and bond swaps with option toggles come to mind) but let's stick to the basics for now.
(i) Swaps
A swap is one of the most common forms of hedge instrument, and they're used by pretty much everyone that can afford them. The language is complicated but the concept isn't, so pay attention and you'll be fine. This is the most important part of this section so it'll be the longest one.
Swaps are derivative contracts with two counterparties (before you ask, you can't trade 'em on an exchange - they're OTC instruments only). They're used to exchange one cash flow for another cash flow of equal expected value; doing this allows you to take speculative positions on certain financial prices or to alter the cash flows of existing assets or liabilities within a business. "Wait, Fuzz; slow down! What do you mean sets of cash flows?". Fear not, little autist. Ol' Fuzz has you covered.
The cash flows I'm talking about are referred to in swap-land as 'legs'. One leg is fixed - a set payment that's the same every time it gets paid - and the other is variable - it fluctuates (typically indexed off the price of the underlying risk that you are speculating on / protecting against). You set it up at the start so that they're notionally equal and the two legs net off; so at open, the swap is a zero NPV instrument. Here's where the fun starts. If the price that you based the variable leg of the swap on changes, the value of the swap will shift; the party on the wrong side of the move ponies up via the variable payment. It's a zero sum game.
I'll give you an example using the most vanilla swap around; an interest rate trade. Here's how it works. You borrow money from a bank, and they charge you a rate of interest. You lock the rate up front, because you're smart like that. But then - quelle surprise! - the rate gets better after you borrow. Now you're bagholding to the tune of, I don't know, 5 bps. Doesn't sound like much but on a billion dollar loan that's a lot of money (a classic example of the kind of 'small, deep hole' that's terrible for profits). Now, if you had a swap contract on the rate before you entered the trade, you're set; if the rate goes down, you get a payment under the swap. If it goes up, whatever payment you're making to the bank is netted off by the fact that you're borrowing at a sub-market rate. Win-win! Or, at least, Lose Less / Lose Less. That's the name of the game in hedging.
There are many different kinds of swaps, some of which are pretty exotic; but they're all different variations on the same theme. If your business has exposure to something which fluctuates in price, you trade swaps to hedge against the fluctuation. The valuation of swaps is also super interesting but I guarantee you that 99% of you won't understand it so I'm not going to try and explain it here although I encourage you to google it if you're interested.
Because they're OTC, none of them are filed publicly. Someeeeeetimes you see an ISDA (dsicussed below) but the confirms themselves (the individual swaps) are not filed. You can usually read about the hedging strategy in a 10-K, though. For what it's worth, most modern credit agreements ban speculative hedging. Top tip: This is occasionally something worth checking in credit agreements when you invest in businesses that are debt issuers - being able to do this increases the risk profile significantly and is particularly important in times of economic volatility (ctrl+f "non-speculative" in the credit agreement to be sure).
(ii) Forwards
A forward is a contract made today for the future delivery of an asset at a pre-agreed price. That's it. "But Fuzzy! That sounds just like a futures contract!". I know. Confusing, right? Just like a futures trade, forwards are generally used in commodity or forex land to protect against price fluctuations. The differences between forwards and futures are small but significant. I'm not going to go into super boring detail because I don't think many of you are commodities traders but it is still an important thing to understand even if you're just an RH jockey, so stick with me.
Just like swaps, forwards are OTC contracts - they're not publicly traded. This is distinct from futures, which are traded on exchanges (see The Ballad Of Big Dick Vick for some more color on this). In a forward, no money changes hands until the maturity date of the contract when delivery and receipt are carried out; price and quantity are locked in from day 1. As you now know having read about BDV, futures are marked to market daily, and normally people close them out with synthetic settlement using an inverse position. They're also liquid, and that makes them easier to unwind or close out in case shit goes sideways.
People use forwards when they absolutely have to get rid of the thing they made (or take delivery of the thing they need). If you're a miner, or a farmer, you use this shit to make sure that at the end of the production cycle, you can get rid of the shit you made (and you won't get fucked by someone taking cash settlement over delivery). If you're a buyer, you use them to guarantee that you'll get whatever the shit is that you'll need at a price agreed in advance. Because they're OTC, you can also exactly tailor them to the requirements of your particular circumstances.
These contracts are incredibly byzantine (and there are even crazier synthetic forwards you can see in money markets for the true degenerate fund managers). In my experience, only Texan oilfield magnates, commodities traders, and the weirdo forex crowd fuck with them. I (i) do not own a 10 gallon hat or a novelty size belt buckle (ii) do not wake up in the middle of the night freaking out about the price of pork fat and (iii) love greenbacks too much to care about other countries' monopoly money, so I don't fuck with them.
(iii) Collars
No, not the kind your wife is encouraging you to wear try out to 'spice things up' in the bedroom during quarantine. Collars are actually the hedging strategy most applicable to WSB. Collars deal with options! Hooray!
To execute a basic collar (also called a wrapper by tea-drinking Brits and people from the Antipodes), you buy an out of the money put while simultaneously writing a covered call on the same equity. The put protects your position against price drops and writing the call produces income that offsets the put premium. Doing this limits your tendies (you can only profit up to the strike price of the call) but also writes down your risk. If you screen large volume trades with a VOL/OI of more than 3 or 4x (and they're not bullshit biotech stocks), you can sometimes see these being constructed in real time as hedge funds protect themselves on their shorts.
(3) All About ISDAs, CDS and Synthetic CDOs
You may have heard about the mythical ISDA. Much like an indenture (discussed in my post on $F), it's a magic legal machine that lets you build swaps via trade confirms with a willing counterparty. They are very complicated legal documents and you need to be a true expert to fuck with them. Fortunately, I am, so I do. They're made of two parts; a Master (which is a form agreement that's always the same) and a Schedule (which amends the Master to include your specific terms). They are also the engine behind just about every major credit crunch of the last 10+ years.
First - a brief explainer. An ISDA is a not in and of itself a hedge - it's an umbrella contract that governs the terms of your swaps, which you use to construct your hedge position. You can trade commodities, forex, rates, whatever, all under the same ISDA.
Let me explain. Remember when we talked about swaps? Right. So. You can trade swaps on just about anything. In the late 90s and early 2000s, people had the smart idea of using other people's debt and or credit ratings as the variable leg of swap documentation. These are called credit default swaps. I was actually starting out at a bank during this time and, I gotta tell you, the only thing I can compare people's enthusiasm for this shit to was that moment in your early teens when you discover jerking off. Except, unlike your bathroom bound shame sessions to Mom's Sears catalogue, every single person you know felt that way too; and they're all doing it at once. It was a fiscal circlejerk of epic proportions, and the financial crisis was the inevitable bukkake finish. WSB autism is absolutely no comparison for the enthusiasm people had during this time for lighting each other's money on fire.
Here's how it works. You pick a company. Any company. Maybe even your own! And then you write a swap. In the swap, you define "Credit Event" with respect to that company's debt as the variable leg . And you write in... whatever you want. A ratings downgrade, default under the docs, failure to meet a leverage ratio or FCCR for a certain testing period... whatever. Now, this started out as a hedge position, just like we discussed above. The purest of intentions, of course. But then people realized - if bad shit happens, you make money. And banks... don't like calling in loans or forcing bankruptcies. Can you smell what the moral hazard is cooking?
Enter synthetic CDOs. CDOs are basically pools of asset backed securities that invest in debt (loans or bonds). They've been around for a minute but they got famous in the 2000s because a shitload of them containing subprime mortgage debt went belly up in 2008. This got a lot of publicity because a lot of sad looking rednecks got foreclosed on and were interviewed on CNBC. "OH!", the people cried. "Look at those big bad bankers buying up subprime loans! They caused this!". Wrong answer, America. The debt wasn't the problem. What a lot of people don't realize is that the real meat of the problem was not in regular way CDOs investing in bundles of shit mortgage debts in synthetic CDOs investing in CDS predicated on that debt. They're synthetic because they don't have a stake in the actual underlying debt; just the instruments riding on the coattails. The reason these are so popular (and remain so) is that smart structured attorneys and bankers like your faithful correspondent realized that an even more profitable and efficient way of building high yield products with limited downside was investing in instruments that profit from failure of debt and in instruments that rely on that debt and then hedging that exposure with other CDS instruments in paired trades, and on and on up the chain. The problem with doing this was that everyone wound up exposed to everybody else's books as a result, and when one went tits up, everybody did. Hence, recession, Basel III, etc. Thanks, Obama.
Heavy investment in CDS can also have a warping effect on the price of debt (something else that happened during the pre-financial crisis years and is starting to happen again now). This happens in three different ways. (1) Investors who previously were long on the debt hedge their position by selling CDS protection on the underlying, putting downward pressure on the debt price. (2) Investors who previously shorted the debt switch to buying CDS protection because the relatively illiquid debt (partic. when its a bond) trades at a discount below par compared to the CDS. The resulting reduction in short selling puts upward pressure on the bond price. (3) The delta in price and actual value of the debt tempts some investors to become NBTs (neg basis traders) who long the debt and purchase CDS protection. If traders can't take leverage, nothing happens to the price of the debt. If basis traders can take leverage (which is nearly always the case because they're holding a hedged position), they can push up or depress the debt price, goosing swap premiums etc. Anyway. Enough technical details.
I could keep going. This is a fascinating topic that is very poorly understood and explained, mainly because the people that caused it all still work on the street and use the same tactics today (it's also terribly taught at business schools because none of the teachers were actually around to see how this played out live). But it relates to the topic of today's lesson, so I thought I'd include it here.
Work depending, I'll be back next week with a covenant breakdown. Most upvoted ticker gets the post.
*EDIT 1\* In a total blowout, $PLAY won. So it's D&B time next week. Post will drop Monday at market open.
submitted by fuzzyblankeet to wallstreetbets [link] [comments]

Making Vehicles and Emplacements Actually Useful

Vehicle play in Squad is currently broken.

There are many problems with vehicles and infantry balance in the game right now. Squad has tipped back and forth between making vehicles like the 30mm OP to nerfing infantry to making vehicles a bad investment again, several times over the history of its updates. After careful consideration, I'd like to present my thoughts to the community and propose an alternative to the devs, while seeking feedback and encouraging discussion on the nature of vehicles and non-infantry assets as a whole.
For those wishing to TL;DR, just scroll to bottom of the post.

------------------------------ First Problem: Balancing Survivability ------------------------------

I'll address this first as I am encouraged by the recent recaps with regards to revamping vehicle play, and many things I say here might be already in the works.
Vehicles have gone back and forth between being incredibly hard to kill, requiring 4 LAT shots in quick succession to prevent escape or return fire, to being entirely vulnerable to long range with TOW as well as short range with LAT's flanking to get rear shots on them. Adjusting their health, we see there is really no sweet spot without bumping into either problem.
I think the answer to this lies in its binary state of effectiveness. Currently, if a vehicle is alive, it functions at the same potential whether it has 100% health or 1% health. Adjusting the health pool of the vehicle either makes it trivial or unfair to destroy. Essentially the effectiveness of the vehicle doesn't scale with its state of repair.
From the dev recaps, I think they are aware of this issue. We have seen plans for vehicles to be update for module damage, such as disabling the engine, mobility kills, and other concepts. This represents the potential to completely revitalize vehicles. If infantry are able to reduce the effectiveness of the vehicle through successive hits, then increasing the total health pool of the vehicle also becomes a fair option. If you can get a single lucky hit and kill half the crew of the Stryker, or destroy its optic and require it to seek repairs, then making vehicles able to survive more total damage also makes sense, which in turn allows crew members to have more fun as they don't have to wait for their vehicle to respawn half of the game.
Ideally, I'd love to see a copy of World of Tanks or similar games, where there are 5-8 modules you can knock out or damage, and the crew could either get out and temporarily repair it, or seek a repair station for full restoration.

------------------------------ Second Problem: Risk versus Reward ------------------------------

The first problem is on the road to being solved, but I have seen very little discussion of the cost of losing vehicles, and I think its actually the more important problem.
As it stands, vehicles cost variable amounts of tickets. Big, powerful vehicles like the Bradley are ~25 tickets I believe, and small transport vehicles 5 tickets. With v12, we see good teams usually declining to take vehicles from main after losing one or two, if at all.
When thinking about the purpose of vehicles, you start to run into a problem with the current system of tying vehicles to tickets. To think about this, I'm going to refer to something I'm calling the 'game state'. To define, I mean the abstract logic that governs who is winning or losing. In Squad the game state is entirely determined by tickets. There are numerous ways to affect the game state, but at its simplest, one has to pursue preserving your own tickets and draining the enemies.
Now, with the removal of ticket bleed (whoever controls more flags drains tickets from the enemy) in v10, the incentive to play aggressively has gone down. With only 20 tickets gained on neutral captures, and +20/-40 on enemy flag captures, the incentive to spend more than 60 tickets on an attack is almost zero unless you are confident you can then regain those tickets by rolling the next few flags, or push the enemy to their main to activate mercy bleed. Your team has to maintain a positive KDR while attacking (quite difficult against competent defenders).
Bringing it back to vehicles, this means that a powerful asset like a Bradley has to contribute 25 tickets worth of value to the team to make it simply break even. The most tangible way to do this is to kill 25 enemy infantry or several enemy vehicles. Intangibly, acting as a force multiplier by enabling your team to capture an objective or destroy an enemy FOB is just as valuable. But, when we think about the purpose of a vehicle, this meta doesn't make sense.
Vehicles are designed to protect, support, and transport infantry. No matter what war, you can have overwhelming vehicle superiority, but if you don't control the ground with your average grunt then the vehicle isn't really doing anything. The average infantryman's life is actually far more valuable than any piece of equipment. Yet, in Squad, this is turned entirely on its head, because trying to best affect the game state dictates prioritizing destruction of vehicles over protection of infantry. Its simple math. 1 ticket = 1 life. 1 Bradley = 25 tickets. Therefore, 1 Bradley = 25 LAT player's lives. Do you want to take a bet on who wins? That's even ignoring the TOW!
Therefore, it makes little sense to risk or expose vehicles in any way, and to spend significant amounts of manpower on destroying them. But, it doesn't make sense to spend that much manpower protecting them either, as then those players are not affecting the game state by playing the objective. (Plus, a single LAT is a lot harder to spot / kill than snapping a shot at a giant IFV.) So a smart player does the math and doesn't bring out the vehicle past what is barely necessary to speedily transport themselves or punish enemy teams for using their vehicles. As long as vehicles are tied to tickets, bringing them close to objectives is a huge risk with low chance for reward. Yet, removing all cost / punishment, or lowering it to a trivial level, would be a problem as well, encouraging reckless play.

------------------------------ Fixing the Problem ------------------------------

How do we encourage vehicles to move in close with infantry and risk themselves, without making them priority targets, or more valuable than the infantry they are supposed to support?
Remove ticket costs from vehicles and limit the number you can bring in. Even better, tie all assets (FOBs, emplacements, vehicles) into a simple resource system to encourage players to manage and use them without directly penalizing them in the game state for losing them.
I envision a second resource system, visible to the team alongside tickets, that would be the source for all non-infantry assets in the game.
Call it something easy to understand. "Supplies" "Resources" etc. Each team gets a predetermined amount at the start of the round. Example: Fools Road V3. US Team gets 40,000 supply, Russian team gets 45,000. All vehicles cost variable amounts, making balancing them easier. A transport might cost 500 supply. A 30mm could cost 6,000. Tanks (eventually) maybe cost 10,000. These values are just ideas, and could obviously be tuned. I would see radios also costing a basic level of supply, maybe 1,000, and remove their ticket cost. Logi runs would draw from the same pool. 1,000 Ammo / 1,000 construction would drain your team of 2,000 supply. In the future, perhaps special abilities like an A10 strafing run, off map artillery, or cruise missile strike could cost a large amount of supply, 20,000+. I would also like to see no respawn times on vehicles, BUT they must be "requested" at main to respawn. IE: Losing your first tank the spawns at round start is free, but to replace it your squad lead must agree to "pay" for a new one.
Why would this be a good system?
First, it would improve the meta game, without directly penalizing a team for using their assets. Currently, you get doubly punished for losing anything that costs tickets, whether infantry, FOB, or vehicle. Infantry is fine as they are the core gameplay of Squad and are the most valuable asset in real life, so losing tickets on death makes sense. But, with all other assets that are designed to aid infantry, you risk not only losing the time investment, map control, and utility of the asset, but also pushing your team towards defeat. Lose a Stryker? Now your team must fight at a disadvantage as well as being directly punished in the game state.
The system I propose would still require you to preserve and manage your assets, but would also encourage more liberal use of them because it would only represent a loss of effectiveness / potential, rather than also including a penalty towards your teams scoring. It would also present an opportunity to reintroduce a secondary point to objectives to replace ticket bleed, namely "resource gain". Gaining the mid flag could slowly replenish your resources, to the point where a team using their assets effectively could gain more momentum despite taking losses. This would incentivize teams away from passive, TDM style strategies because the other team would become richer in assets like tanks over time while they lose opportunities to counter the enemy team.

TL;DR

Vehicles and FOBs/emplacements risk tickets. Tickets directly affect winning or losing. Vehicles / FOBs are more valuable than infantry by tickets. It doesn't make sense to use them in close support. You get punished twice for losing them, first through loss of utility, second through loss of tickets. I propose a new system: vehicles and FOBs and logi runs cost a new secondary resource. Teams start with finite amount. First vehicle spawns are free. Replacing them isn't, but is instant. Holding more objectives than the enemy team could slowly refill your resources to encourage objective play rather than the v11 TDM. I believe this would encourage players to use all the tools at their disposal, without directly punishing the rest of the team for losing them.
That's all, thanks for sticking with me if you read this. I'd like to encourage all discussion, ideas, and critique of this proposed system or the current system below.
submitted by jjordawg to joinsquad [link] [comments]

[Table] Reddit, IAMA statistician that's been dealing with credit for 12 years, I noticed that a lot of people have misconceptions about credit and credit score. AMA

Verified? (This bot cannot verify AMAs just yet)
Date: 2012-07-18
Link to submission (Has self-text)
Link to my post
Questions Answers
Why is the formula for calculating credit scores so secret? Considering the profound effects that number has on your life, people should at least know how it works. There are multiple reasons.
First the creators and banks are worried that you will game the system if you know the formula.
Next the more cynical answer is that the credit scoring industry generates hundreds of millions of dollars per year in revenue. By keeping them proprietary, the creators can keep charging and claiming that their score is the best.
Every man has his price and some people would be willing to pay a lot of money for such knowledge. How much of a bribe would it take to get detailed information about your scoring models? I haven't created in a decade. Even then it would be hundreds of lines of code.
It seems to me like there are two camps: those who don't understand credit/credit scores at all and dig holes for themselves they can't get out of, and those who obsess about their credit score when it probably doesn't matter. The former is probably pretty self-explanatory. About the second: am I wrong in thinking that your score probably doesn't matter much unless you're trying to get a car loan or a mortgage? Following up on that: Are there things people should consider doing that they're currently too scared to do because it might hurt their score, like opening up new credit cards for points/rewards and then closing them as soon as they can cash in their rewards? That activity would hurt your score, but if you don't need a high score and you act responsibly about those cards, that's basically free money. Right? What are some other tips/tricks? I think your score doesn't matter much if it is above 700 or generally considered good depending on the model and scale. For everyone else it has ramifications from auto insurance rates to just get by in life. There are many best practices to building credit that people don't do that they should. #1 is getting a no annual fee credit card. These things are free and they build credit. In many cases, they will even pay you to use them (cash back or miles). I suggest having 3-5 credit cards. Apply for them over 2-4 years. Never carry a balance. Never buy what you can't afford. If you do just this, your credit score will be in the good category in 2-3 years.
How do you model the "winner's curse" problem where you know you're competing with other credit suppliers, and you only win business when you've offered better terms than your rivals saw fit to? Adverse selection and positive selection are very real parts of the business. Many issuers will test the same product with different pricing to measure the effects rates and fees.
Along the same lines, if there was some hit on someone's credit that you knew didn't affect the payment probability but that did affect the customer's ability to get credit elsewhere, would you use it to charge him a higher rate? Ten year ago when I was at an issuer, we wouldn't do this. Few banks are predatory when it comes to pricing. Credit scores account for most of the risk and you would have to prove that the data is non-discriminating to regulators for the rest. It's just not worth it.
Do you prefer customers who generate lots of late fees but ultimately pay over ones who pay promptly? Fees generate lots of revenues. This question is a matter of strategy for the bank. Amex for example wants people who pay on time with no risk. Other banks may serve the middle market that take the fees into account when going after the market. You usually pick one or the other.
Do you pay any attention to people who try to game the cards, like when I only use my Chase Freedom card for whatever's in the 5% categories this quarter, or when people used to buy dollar coins from the Mint? For most issuers, this is a known cost of business. Some customers simply cost banks money either in the form of default or usage pattern.
What do you feel is the primary misconception about credit scores that you'd like to clear up? The biggest misconception is that there is only one credit score. I see this one all over the Internet and Reddit.
Each consumer has dozens of credit scores. You will never be able to see them all since many are not sold to consumers. This is further exacerbated by the fact that there are three bureaus which means that each score has three variants.
It is up to the bank to decide which credit score they want to use based on the price and how well the score predicts risk. Banks often don't want to talk about which score they use because it is a key determine of their losses and therefore a very competitive piece of information.
FICO tries to position themselves as the only score that matters. But it is really up to the banks. With that said, FICO is the most common score in mortgages cause Freddie and Fannie required a common risk score. FICO was the defacto score due to circumstances 20 years ago. But in every other industry, it is totally up to the bank to decided which score is best for them. Vantage is the next largest competitor. Here are their adoption numbers as validation: Link to vantagescore.com
What are the most common misconceptions about the credit industry? I think the second most common is that pulling your own credit score will hurt your score. The first was answered above.
There are two types of credit inquiries (aka credit pulls). A soft inquiry is what happens when you check your own credit. This is also what happens when you are pre-screened without your knowledge. These types of inquiries do not hurt your credit score.
The second type of credit inquiry is a hard inquiry. These are credit checks when you apply for credit.
Because both are called inquiries, many consumers believe that any inquiry will hurt their score. This is simply not true.
I'm 18 about to turn 19 and I live in my parents, next month I start school (local community college/ freshman) I have a part time job and average about 150-250$ a week. The only payments I have are my iphone which is 90/month and my insurance which is 100/month. What advice would you give to me regarding building a maintaining a GOOD credit score? Find a student credit card (they have lower requirements). Use it for gas or groceries. Never carry a balance. Never use more than 30% of the credit limit. In a year, your score will be higher. Get one more card (more cards will open up), keep the old one open. Follow the same process. Stop at 3 or 4 cards. In 3 years, your score will be in the 700s, you won't have paid a penny in interest.
Can you recommend any student credit cards? I think most of the big issuers have decent products. Check out Capital One Journey. In full disclosure we have a business relationship with them but they seem to be doing the right things in my eye.
I have a guy that I work with who had his mother open up credit for him when he was very very young, like prepubesent, or so he says. He finally came to age where is figured out how money works and ended up getting credit cards with 10K plus limits. He ended up raping his credit and joined the Air Force because of that. Is doing that sort of thing, getting credit as a kid, feasable? Or was he just lieing? Also, when I got my first credit card years ago, I pulled my FICO and it was like 700. That was extremely misleading to me. They should start credit in the middle, like 500/450, and go up and down from there... Also, I had perfect credit for 3 years, and bought a new car with 0.9% financing and they said they fought tooth and nail for me to get it. Should I hug them? Or did they lie? Twenty years ago it was all about score. Today most of the issuers use score and a host of custom data points and models. For example they might give you an adjustment if you have a mortgage in a declining real estate market. Scores matter but they are just a part of the decisioning process for any sophisticated credit card company. Generally credit starts at 600 for people with no history. It goes up or down based on what you do from there.
I'm a Credit Karma user and I love your service...it's helped me maintain a pretty high credit score over the past couple of years and given me a better understanding of how things like credit card utilization work. So here's a question for you...my credit is in the high 700's (775). Is there any real benefit to me to have a score much higher than that? If I'm say, shopping for a mortgage will the rate I'm offered differ significantly if my credit score is 800 instead of 775? Only bragging rights. Otherwise there is no real benefit.
What's the best way to check my credit score? The best way to check your credit report is AnnualCreditReport.com. Self promoting here but I think the best way to check your credit score is CreditKarma.com.
Just checked my score on creditkarma and I'm at 788. What I found odd was my credit card utilization score. I have $30,000 in limits. $90 in debts (actually paid that off today). Utilization of 0% and a grade of C. Why such the low grade? Simply because I have high limits and don't ever carry a balance? The grade we create by correlation. The rounding brings you to zero utilization which correlates with lower credit scores. If your score is 788, you have nothing to worry about. We have been wanting to address this corner case for a while.
When should you check your credit score? I know it's free once a year, but when is the best time to pull it? I've never checked me credit score, and I know it's not very good but I'm curious to see how bad it actually is. My fear is that if I pull it now, I might need it again sometime before that year is up. Should I wait until I know I need it, or is ok to check it now out of curiosity? If you check your report once per quarter, you should be fine. Check out CreditKarma if you are interested in check your score for free. (Shameless Plug)
Do people really give you their birthday and SSN that easily? When we first launched, no. But today we have been around for 5 years and have over 7 million users. That helps us get over the credibility hump.
Is it actually free or are you going to slam me with hidden fees when I don't expect it? Best answered by others.
I'm 23 years old, make 35K a year, and have never been able to open up a line of credit; I've been denied by USAA, Chase, even Target. Is secured credit my only option? Any suggestions as to where I would have a good chance at opening up an unsecured line of credit? If you have no serious derogs you might try Capital One. They cater to people with limited credit. If you credit is very bad due to delinquencies or charge off then yes secured is your best option.
Please note there is a difference between no credit and bad credit.
I have no credit whatsoever, would I still have a shot with Capital One? No credit yes. Bad credit maybe. It is important to note that there are differences between the two.
A request for your Website's Credit Simulator: Simulate the result of closing a card that is not the oldest, letting the user input the card's age and the amount of credit that will be removed. We have a number of simulator initiatives. They can be painful. Please bear with us.
A specific question related to the above: A year ago I obtained a new card with a very small ($1,000, compared to up to $35,000 on my other cards, the oldest from the mid-1990s) line without thinking about how this would affect the average age of my cards. Should I close the card, which I don't need, even if this means that my available credit would decrease slightly? As for closing your account, don't do it if there is no annual fee. Low limits don't hurt your score but short histories do. Just cut up the card and check on it once per quarter.
Is there any harm to having too many cards or too much available credit? I have a few cards with $1-2k limits that I'll never use again, but I haven't closed them because they're older than my current cash back cards. Rarely. If you have 20+ cards, it might be too many. But here is a chart you might find interesting. Link to www.creditkarma.com
Could you guys add to that infographic the population ratio between each of the five sectors to give a general idea of how how many people succeed in getting those higher scores? We have this image on our site. Link to ne.edgecastcdn.net
Thanks, is that chart derived from the same sample as the other one or is it a different group? Same criteria different time periods.
If you have a negative hit on your credit score by a collector how hard is it to remove it? The issue here isn't paying the fee but the detrimental effect on your credit score. If the collections inquiry is factual, it is fairly difficult to remove. Many people don't know that you can negotiate with the collections company. Google "pay for deletion" agreement. In that approach, the collections company agrees to remove the inquiry in exchange for you paying the debt. You can use it as leverage but it is not standard so get it in writing before you pay.
Thank you so damn much for this! My pleasure. Credit and Street Fighter are two of the things I'm good at.
How likely are they to agree to this? Sometimes I wonder if the goal of the credit agency is to collect money or to actually mess with people. Credit agencies don't collect money. They just report. Collections companies are different.
Collections companies buy you debt for pennies on the dollar. They want to collect something but they don't expect all of it. As a matter of fact the only expect a percent of their percent so just negotiate with them. They will gladly take something over nothing.
What is a perfect credit score and is it possible to hit it? My dad has had a credit card since they came out, more or less, and has never missed a payment. It depends on the model and the range. It is very difficult to have a perfect FICO score (850). In fact, I don't recall ever seeing one.
With Vantage it is much easier, I have seen many (maybe ~5% of users) have perfect Vantage scores (990).
Does having a credit card and not using it ever negatively impact your credit rating? No, the only risk you run is the issuer closing your account. I suggest charging a tank of gas once per month to avoid the pitfall.
I'm more interested in how you got in your line of work. How did you get to work for a credit card industry as a statistician? I had a math and econ degree. I was good with numbers and just ended up at a credit card company by happenstance. There is no formal training needed. Analysts are always in high demand. Learn SQL and SAS if you want a leg up on everyone.
How much experience did you have with statistical analysis, SAS, and SQL before you got your first job in the field? SAS - None SQL - None Stat - I have several grad level econometrics and stats classed but no real world experience.
I'm signed up with you and creditsesame. Right now your estimates differ by over 100 points. How do your methods differ, and what do you think of your competition? They use a different bureau so that is going to be a factor. Next they use a different model which will be another factor. More than anything the score matters. For example, my TransRisk score is 781 but my Vantage score is 990. Keep in mind both are the same credit bureau but this is a key illustration of why range and context matters.
We see our competitors as validation of the model. May the best product win.
I'm recently engaged and have a 700+ credit score. My fiancée made some bad decisions in her younger years and has a really bad score. She had debt collectors in the past and has been declined for a credit card and pretty much only uses cash now. She's debt free now an plans on staying that way. Any future pitflalls I should be aware of and what can I do to help rebuild her score? Have her get a secure credit card. Its like a pre-paid but it will start to build her credit. In 3-4 years her credit could be fine and it won't cost you anything to rebuild with the exception of the opportunity cost of the deposit.
What's your advice for somebody without a credit history? For examples, in case I move to the US for professional reasons (and have good credit back "home"). Just start like someone new to credit. Link to www.reddit.com
What probability distribution do credit scores have? They are logarithmic. It becomes increasingly more difficult to get from 750 to 800 than 550 to 600.
Scores are for consumer benefits. The models we build give us a probability. I suspect the industry transformed that probability into a score as no to offend but in the end, the banks translate the scores back in to a default risk. Very silly if you think about it.
Why get a credit card? I am an adult male in my mid thirties and have never had one. I have taken out three loans in my life and paid them off successfully. I have never been in real trouble with landlords or utilities. For the most part, my driving record should be clean as well. Do I still need a credit card, or can I continue to get by without one? Credit cards are virtually free and they are the backbone to your credit. Sure you can get by without credit but that is a more difficult path IMHO.
I'm interested in becoming a statistician. I was wondering if you could tell me how your got started? What was your degree? Is the pay respectable for the amount of education required? Where do statisticians get hired? How is the job security/prospects? I love math and statistics! Answers are peppered throughout the AMA. The career is great if you like data and understand data well.
Is it ever to late to start building credit with a card? No, credit scores can not take the age of a consumer into account as it would be discriminatory. As such, it is never too late or too early to build credit.
How many hard inquiries can you have on your record before it becomes detrimental? I currently only have 1 card opened, and 3 inquiries that have been there for less than 1 year. Credit Score is above 700. It varies by model and your current score. Most things in the credit score world aren't linear. I know that is a shitty answer but we performs lots of transformations and adjustments based on the user. My generalized answer is avoid more than 2 inquiries in any 6 month period unless you are shopping for a home or auto.
It's my understanding that if you have several 'hard' inquires of the same type (mortgage or auto for example) in a limited timeframe(14 days?) that they all count as the 'same' hard inquiry. Is that correct? That is correct. All will show on your report but for the score it will only count as one. The timeframe is dependent on the model.
What is your educational background and certifications. Are you an actuary? I have a degree in economics and mathematics. Mostly you need to know econometric or statistics. I started my career in a credit card risk modeling group and just learned most of the industry specific skills on the job.
What statistical tests and procedures do you use the most often? Expect lots of logistical regression. You will be looking at predictors of default (0,1)
In addition, CHAID and Clustering can often be used.
Many times, Excel and pivot tables are great precursors to modeling data.
I got a credit card when I was 18 with the intention of building up a good credit score so that when I actually needed it, I'd have no issue getting a loan or car or anything of the such. I'm currently 22. Sadly, last Christmas I went out and stupidly purchased more than I could afford. It was the first time I've ever done this. Since then, the balance has been riding on almost maxed, but never over, and never late payments (As I don't have much in terms of money, I can't exactly pay more than minimum each month. I understand this is stupid and I won't pay it off for a long time, but I don't intend on continuing this situation past more than a month from now. But I'm curious how this is affecting my credit, having a balance on it for the last 6 months and not paying it off completely. Is it negatively affecting me since it hasn't been paid off, or is it fine since I haven't went over my balance + I've made the minimum payment? Duration is less a factor as more credit scores are snap shots rather than time series. Try to get it under control ASAP. As long as you don't miss payments the impact should be minimal.
Why can't a creditor estimate the amount of credit to be offered if provided with a credit score? Most credit limits are based on DTI (debt to income) and score. Without the income and the other debts, limits are a shot in the dark. Keep in mind income is not on your credit report.
Still doesn't make sense. I will get a credit limit anyway. How do they decide? If I apply for a credit card and don't like the conditions and the limits and close it immediately, why is my score still affected... Why can't I shop around like in a real market economy? Shopping is fine for home loans and autos. But credit cards generally have rates displayed ahead of time.
When you apply for too many products in a short period of time (specifically credit cards) you are a higher risk person. Think about it this way: "We have a guy that is applying for everything under the sun. We should be very careful with him" that's how the scores work and the statistics back it up.
A friend of mine has been considering bk, chapter 7. If he goes through with it and is smart afterwards, how long could it be before he establishes reputable credit? Usually take 4-7 years. It depends on the product. Cap One may grant a secure card or small line instantly. But Fannie and Freddie won't back a mortgage for several years.
Thanks so much for this IAMA! I just had a quick question. I'm 21 and have never had a credit card nor a loan. I have a lot of money saved up in my bank account so I know I can pay off pretty much any type of card, I just never have gotten around to getting one. What type of credit card do you think would be best for me, and how do you think I can build up a good credit score in as little time as possible? Get a no annual fee card. Capital One really serves this category so look there. Your bank might have a good product as well especially if you have large deposits.
Sounds great to me! also, lets say I wanted to get into the field. I'm currently studying accounting and economics at university. How much of a demand is there for this field, and is the pay good? Yes and Yes. The US is moving to a service industry and these are prime examples.
I rec'd a settlement offer for a loan I had on a car. I was told to do it by some, not to do it by others. If I pay them the total settlement, what will that look like on my credit? To rebuild credit, get a secure credit card. They will re-establish a history for you. Approval is almost assured since it is secured.
Very interesting information. I never checked my FICO score (& didn't know other scores even existed) yet & I'm curious what it might be. Can you at least say the lowest & highest possible values? Does it run 0--1000 or some other range? Does it have gimmicks like getting 200 points for simply existing/signing your name like on the SATs? It depends on the score as they have different ranges. The most common range is 350-850 which is the FICO range but others exist. As such you need to look at your relative score in the range rather than the absolute value.
I'm about to enter college, so is it a good idea to get a credit card and make all purchases on it to build credit? And if I made my payments on time, will that guarantee a good score? Provided I spend conservatively... I focused mostly on econometric in college. Data modelers have always in demand even through the recession.
Also, tell me more about your statistical background. Is it applied or mathematical statistics? As for credit cards and building credit, I have a post somewhere. Maybe I'll edit the post to include the tip.
How much do federal student loans affect one's credit score? It is just like any other loan. The impact depends on the breadth of your credit history. If it is your only loan then it makes up a a majority of your credit. Conversely, if you have 10 open accounts, the impact is greatly diminished.
I have 2 cards that are closed but am still paying them off. And 3 open cards that gave balances as well. My question is, is it better fir me to pay off the closed accounts first? Or the open accounts? I'm gonna do the snowball effect ($500 to one card, and slightly above min on the others). TIA. From a credit score optimizing perspective, it is probably best pay down the open account first since it create "open to buy" or said another way it lowers your credit card utilization. The closed loans don't have available limit so it doesn't help your score. Obviously the other main consideration is the APR on the respective cards.
So I have a secured credit card now because I kept getting declined when applying for credit cards. Does it hurt your credit score by keeping on trying to get a credit card and getting declined? Yes. Don't apply for cards more than once per 6 months. Ideally once per year. You want to apply for cards in your credit range.
I was wondering, I know any bad mark disappears after 7 years, but if I've made s late payment or two, how long does that negatively affect my score? The entire 7 years? The effects generally diminish over time, it is not binary. I suggest get the account current and making sure you pay on time going forward. The impact to you score should be gone in 1-2 years depending on your score and other accounts statuses.
What software do you build your models with? R? R, SPSS, and SAS are probably the most common stats software. The credit card industry tends to use SAS so if you can build a competence in that you will be like the Java developer in Silicon Valley.
Cancelling a credit card: bad for your credit or not? Not missing payments, good history, just wanna cancel and have one less card in your life type of thing. (Assuming you have others) Usually bad. Credit is all about the predictors. If you have a card and it stays open for a long time, it suggests to other lenders that you are very responsible.
So I suggest, cutting up the card. Keep it open and check that no one uses it online every quarter.
I am a statistics undergrad, particularly interested in econometrics, which is seemingly tangentially related to what do you. What advice could you give to a young statistician on what to focus on, what are the new things that will be more relevant in the years to come? "Big Data" is all the rage in Silicon Valley. That means good data miners are going to be in high demand. Learn SQL, SAS, and a scripting language if you want job security with lots of upside.
I missed your open house today. When will you have another event? It was fun. Probably too much fun. I am sure there will be other launch parties in our future.
Wait, always pay it off in full? I was always told to leave a balance on it so that they know you're able to handle that. Have I been lied to? You have.
Last updated: 2012-07-20 12:09 UTC | Next update: 2012-07-20 13:09 UTC
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[Table] IAmA full-time Bitcoin day-trader, blogger, and explainer. I was a pro TCG player. Here until Midnight EST. AMA!

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Date: 2014-02-20
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Questions Answers
Let's say someone was looking for a stay at home computer job, would you recommend doing what you do? Is it something you can hop into, or is it something a lot of time must be put into before considerable income comes? You handle risk and pressure well, and you don't let your emotions guide your decision-making. Professional Poker and TCG players often develop this skillset.
You have experience working with stocks, bonds, derivatives, foreign exchange, or other financial instruments. If you have a strong mathematical background, that would also likely fulfill this.
You can invest significant capital into trading while remaining financially secure if it all suddenly vanishes.
You are capable of constantly monitoring a situation, waking up in the middle of the night if an alarm goes off, etc. It requires serious dedication.
You are good at keeping up with news, understanding market psychology, and "feeling" shifts in attitude and perception among other market participants.
Of those, I'd be most cautious if you don't meet no. 3. Going bust is a real possibility--day-trading a volatile commodity is inherently extremely high-risk. Nos. 2 and 4 are the easiest to learn or force through routine. No. 1 requires a person who approaches things in an emotionally detached manner. No. 5 is something that comes with investing enough time.
Second question: I'm answering this after that big block of text because this answer will come off like a get-rich-quick scheme. Yes, you can hop into it very quickly, and you can start making very high profits very quickly. I put in a small initial investment to test the waters, and made 10% on it in a few days. If you have the right skillset, composure, and resources, yes. It is a potentially very lucrative and exciting stay-at-home job. It is not for everyone, though.
As much as it would be beneficial for me (being in the industry and all), to tell everyone it's easy and that it will help them provide for themselves I feel that people need to know the real risks that are involved. Regardless, that's all a little irrelevant. We're not playing the house, and we're not flipping coins. We're playing other investors, and we're making actual decisions. You keep saying things like "98% lose money" and "Go onto any FOREX forum, and you will see from the users posts that they pretty much all lose money" but you don't back it up. Cool, yeah, it's a zero-sum game with a rake: a little more than half of the players will lose. That's expected. They'll probably complain about it, too, huh?
Retrospect can have a very positive effect. Got any real account trading statements I can have a look at? Let's see how fast you can come up with excuses not to show me ;) I only have and need one: I have chosen not to disclose my personal valuation for privacy reasons. Same reason I've had all along. I instead publicly disclose my trades, as they happen, on my website. The posts are timestamped, and the ones that are the start of a position contain the price I entered at. Go check the posts, then go check the charts, then go check my archive. But feel free to continue to arbitrarily call my credibility into question--that makes your argument better!
What leverage do you use? In Australia the leverage is typically 100:1, perhaps that's why your not seeing how risky I deem it to be. First, our argument so far has had nothing to do with risk. Second, I told you I am leveraged 2.5:1, two posts ago. Third, you realize I'm trading Bitcoin, not ForEx, correct? And that no one in their right mind would offer 100:1 leverage on Bitcoin due to its volatility?
What's your last year's hourly salary? A year ago I was finishing up college and extricating myself from the TCG business I'd co-founded. I took very little in take-home pay over that period, but kept part ownership of the continuing business. Money isn't just about the number on your bank account--it's also about residual future income.
How many hours a week are you typically on a computer? On a computer, probably 50-55, if you add in time I spend on my phone, I'd say 65-70. Day trading takes constant watchfulness. I imagine it's like an easier version of taking care of a baby.
What are your favorite to sources of news besides waiting for it to get to the front/hot page of /Bitcoin when it's several hours old? I have an IFTTT for /BitcoinMarkets and /Bitcoin that notifies me early on about some posts.
What's the weirdest thing about your mom? She started a bookselling business online in her 50s and makes more money than me.
Or.
She's a little old lady who loves gadgets and technology.
What are your thoughts on Dogecoin and other bitcoin competitors? Do you think any have staying value? LTC.
DOGE.
NXT.
VTC.
Coins that offer something different or that have a strong community to them can be valuable prospects.
LTC is the first-mover scrypt coin - DOGE has the most non-techies interested in its success and is spreading quickly as a result - NXT is a cool generation two coin that has a lot of features BTC doesn't have - VTC is ASIC-resistant
Ok, let me spell it out to you. The retail forex market only makes up 5% of the total forex markets liquidity. The other 95% is from hedge funds and institutions. Therefore, 99% of the retail market losing their money is very possible, as that only makes up 4.95% of the whole market. Is it possible that 4.95% of the market generally loses? Yes. How is that infeasible? Nope. That's a false equivalence. It is possible that 4.95% of the market loses. It is not feasible, that, say, 99% of people with blue eyes lose. What, exactly, in empirical terms, is the difference between retail investors and hedge/institutions that causes this INCREDIBLE disparity? Would you care to respond to my above empirical argument that demonstrates that a zero-decision system is flipping a losing coin? Do you consider it feasible for 99% of people playing a 45-55 game to lose?
Are there options and/or futures markets for Bitcoin? Not really yet, but there will be more prominent ones soon. I hear about a new one pretty regularly, it seems, but nothing that seems truly legitimate has come out. I'm certainly excited for them, though.
Eventually, once Mr. Lawsky and co. get things sorted out, I'm certain we'll see a big-name investment bank start offering them.
From the time you started trading until today, what is your overall percentage return? In USD, my percentage return calculated from investment to current valuation is about 300% over a little more than 2 months.
In BTC, my percentage return calculated from investment to current valuation is about 425% over a little more than 2 months.
Using my average per-coin buy-in price, if I had just bought-and-held, I would have lost about 27% of my initial investment value.
Ben, i told you I'd be here and asking about Hearthstone first. If there's one class that needs a bit of tuning, up or down, which is it and why? I think Mage needs basic, class-level tuning. I'm not sure what needs to be done exactly, but I don't like what the Mage class power does to gameplay. I've thought some about how different it would be if it could only hit minions, and I'd want to know if Blizzard had tried that out. The Mage power is too versatile, and over the long-term I think it will prove to be problematic.
What's your favorite card? Lord Jaraxxus is my favorite card. He has a truly legendary feel to him when you play him, but your opponent can still win, even though he's very powerful.
So, where do you think we go from here? I'm currently short, but I don't expect to be so for a lot longer. I don't think we'll get past 550. I also don't expect this drop to hold on for a really long time.
I haven't seen a good, substantive rationale for what the MtGox situation really has to do with Bitcoin price. Yes, it looks bad, it certainly doesn't help with our legitimacy, but is it really worth the incredible price declines we continue to see? I don't think so. I think we are seeing these impressive declines because the price on MtGox (which is a reflection of trust in MtGox relative to Bitcoin price, not just Bitcoin price) has been declining heavily. I don't expect it to continue forever, especially not with things like the Winkdex and the accompanying ETF launching.
MtGox is basically dead to me, for now at least. The sooner everyone stops paying attention to it, the sooner we can all get back on track, which I, for one, will be quite happy about.
Do you think that it's a good thing for a game when the developers of that game discourage certain playing styles (e.g. mill decks or decks that try to win in unconventional manners) whether in hearthstone, MTG, or other TCGs? It can be. I don't want the developers metaphorically over my shoulder outlawing strategies, but I don't mind if the strategies that are "less fun" for your opponent (Draw/Go, Mill, or Hard Combo from MTG, for example) are also less powerful. Most players prefer a game where the best decks are also among the most fun, because it means that they are playing against fun decks more often. Clearly the 2-cost 3/3 will be played most often. If you fix this by making both 2-cost guys 2/2s or 3/3s, or by making one a 2/3 and the other a 3/2, then you've done something--but it's not that interesting. If you instead make the 2-cost 2/2 have text that says "While you control the 3-cost 3/3, this gets +2/+2" and you give the 3 cost 3/3 text that says "While you control the 2-cost 2/2, it has Taunt" you now have more complex cards that reward players for doing something other than just playing the best stand-alone card.
Which do you think is a better option to encourage diversity in TCGs; improving/buffing cards/decks that hardly see any play versus weakening/nerfing cards that are overwhelmingly played? This is obviously a very simplistic example, but I hope it makes the point. Games are more fun when you give players more relevant choices: buffing and nerfing cards tends not to do that as well as promoting synergies does.
Where/what is the actual money behind bitcoin? If it does exist. You might need to rephrase your question for me to understand what you're asking. If you're asking why a Bitcoin has value, the answer is the same as any other good: because someone is willing to pay it.
If you're asking why someone is willing to pay that amount, my answer would be utility.
I just got started on Bitfinex (using your referral link) and am a little intimidated. What types of trades would I recommend I try as a beginner? From there, just keep careful watch, and see what happens. Be neutral and objective toward your own hypothesis, just like in science. Don't be biased by your hopes, be focused on the reality.
So far I've only done a liquidity swap offer to try it since it seemed (nearly) risk free. Have you done any liquidity swap or is it too low in profit? If I'm not going to be able to check my computer for a day or two, or I'm uncertain of what's going to happen the next few days, I do use the liquidity swap function. It's actually very profitable, relative to traditional investments. And you're right, it is low-risk. I'm a fan. Good job selecting it if you were intimidated--that's a good place to start. As far as actually starting trading, do science. Start with a hypothesis. If you were up at 5 AM today when MtGox published their announcement, a good hypothesis might have been something like: "This announcement is going to be a blow to their credibility, and might panic the markets. We'll probably drop by some amount as a result." Invest based on it, figure out around what price you want to take profits, and at what price you'll cut your losses and get out. Stick to those determinations unless something substantive changes. The time you tell yourself you can afford to not close your position because it will "rebound" back to where you want is also the time you lose your shirt.
Is it true that you like Balloons? No, I <3 them.
Lol to the question about your mom... Ben, from my understanding Bitcoin is anonymous, does this mean that you can avoid taxation when receiving payment? Bitcoin isn't anonymous. That's actually a common misconception. It's actually pseudonymous, like Reddit. You end up with an online identity--a wallet address--that you use with Bitcoin.
If I walk up to you on a street corner and buy Bitcoin with cash, then I'm pretty much anonymous. If I buy it from a large institution like Coinbase or some other company, they will have records of the address my Bitcoin was bought for. As a result, you can trace them down, generally speaking.
As for avoiding taxation, that's a general no.
What do you think Bitcoin's biggest hurdle is and how do you think it can be overcome? Are there any misconceptions about Bitcoin that you think people have? The biggest hurdle for Bitcoin to overcome is governments. Governments have a variety of reasons not to want an alternative currency. We seem to have done pretty well on that front here in the US, but for other countries (China) that is not the case. Past that, the other major hurdle is something I consider an inevitability: consumer adoption. Business adoption has begun in earnest, consumer adoption hasn't. It will when enough businesses take Bitcoin to give it sufficient utility for the average customer.
What trading platform do you use to daytrade Bitcoin? What is the standard margin that Bitcoin brokers offer? what's the typical ask/bid spread? I primarily use Bitfinex.
Very few Bitcoin brokers currently offer leverage, Bitfinex offers 2.5:1. Over time, I anticipate it will become more like current Forex, where 10:1 or greater leverage is common.
It varies by exchange depending on their fees. Huobi charges 0% fees, so their spread is generally tiny. Some exchanges can be as wide as 1.5%. Typically, I see spreads between .5 and .7%.
Do you invest in any other type of cryptocurrency? if so, which is your favorite besides bitcoin? I currently have no other holdings, but I've held DOGE and LTC at points and am considering VTC and NXT. DOGE is probably my favorite, because if the community can keep this up for a little longer it will snowball into amaze.
Can you trade me a Jace? TMS WWK, TMS FTV, Beleren, MA, or AoT?
Beleren. M10, M11, LOR, JVC, JVCJPN, or Book Promo?
M10 and if not possible then M11. Sure.
I've been reading your blog for quite some time and especially like your summaries for recent events. Keep up the good work! Do you use strict stop-loss orders for your trades? When do you decide to close a trade? Especially in situations where you can basically see you profit/loss grow by the minute. When is enough? Do you have a longterm bitcoin investment you don't touch or do you use everything you have for trading? I do use relatively strict stop losses, but they're not stop loss orders. My conditions usually aren't just the price hitting a certain point, but instead it sustaining for a brief period, or hitting it with a certain volume, or with a certain amount of resistance to retreat. I don't want my stop loss to be triggered by some idiot who dumps 300 BTC and temporarily drops the price 15, but only ends up really dropping it 3. I am very strict with myself about this, though, generally speaking--if I can't trust promises I make to myself, what good am I?
Let's say for example you have a sum x dollar and a sum y bitcoin on your trading account. How much % of x or y do you risk at every trade? I've seen a formula for the max. amount of investment and read numerous times that traders shouldn't risk more than one or two percent of their "bankroll". Do you generally have dollar and btc or just one of them at any given time? 100% of funds in every trade, so long as all funds are easily moved into the position. Common exceptions are lack of liquidity and funds being on other exchanges. My reasoning for being all-in all-the-time is that it's a profit-maximizing move. It is also risk-maximizing. My risk tolerance is infinite; most people's isn't. Only ever one. Generally BTC if I'm long, dollar if I'm short. I prefer to double-dip, as otherwise it would be in contradiction to the 100% plan. I use everything I have for trading. Again, profit-maximization, infinite risk tolerance.
I decide a closing price when I'm near either my stop loss or my profit aim. I place a limit order or multiple limit orders wherever I need to. I avoid market orders whenever possible. Enough is when I hit my goals or my loss tolerance. I decide these at the start, but I frequently re-evaluate them as news and market conditions develop.
What is a typical bid/ask spread for Bitcoin? It depends what exchange you're looking at, but generally .5-.7%.
What's the best way to popularize Bitcoin among the masses? Add your own but would love your thoughts on: -microtransactions developing nations -gift economy (tipping) I would suggest just running around shouting "You get to be your own bank" is probably the best way.
In all seriousness, though--we don't need to try. It's going to happen on its own from now on, as the news media slowly starts to pick up the story. People will start appearing on TV talking about it with more and more frequency. Things like the Dogelympic teams are great PR and help boost it up, as well, of course, but in general it's just going to follow the adoption curve of every other technology.
If it picks up in a few developing nations that have stable internet, it will be a massive revolution for them. Self-banking can do a huge amount of good for an economy like theirs. We might see reports on that. If a major newspaper decides to run a permanent paywall like what the Sun-Times tested recently, that could be big as well. The slow PR from tipping on Reddit is another way, to be honest. Every bit helps, but the cryptocurrency community is now large enough that we're going to do a significant amount of organic, word-of-mouth style growth.
Do you think that a magic game could beat harthstone? If they do a good job, absolutely. They have to focus on the right things. It needs to be mobile-available, easy to pick up and play, and fun.
Is there a good crypto currency to get in on now, before it explodes like bitcoin did? There are plenty of options. Check out coinmarketcap.com. Fair warning, there are plenty of horrible things there--treat it kind of like penny stocks. I like BTC, LTC, DOGE, NXT, and VTC.
Also, why is it such a pain in the ass to buy them with actual money? Like you have to have bitcoins to buy other crypto currency. It's such a pain to buy them with USD because no one has made a good system to do it on, like Coinbase. If you think there's a desire, go do it!
Well the way I look at it, is how the hell else would you be able to buy them? Not everyone has piles of bitcoins lying around and I really don't want to spend $600+ on a single bitcoin just to buy some other currencies. Ah, I see the problem! You can buy fractions of a Bitcoin using Coinbase--I think .01BTC (~$6) is their minimum.
The March 2013 appreciation was from American and European investors and November 2013 was mainly from Chinese investors. Which group of people do you think will be the next to buy (I hate using the word invest when talking about bitcoin) bitcoin for investment purposes? American institutional and hobby investors. That is, Wall Street and people who pay attention to Wall Street.
Which do you think will be a better long term (~5 years) investment, Bitcoins, Litecoins, Dogecoins, Fetch Lands, Shock Lands, or Original Dual Lands? Does it change for ~10 years? Either Bitcoin or Fetch lands for 5 years. For 10 years, Bitcoin. I'd be worried about the 10-year view for paper MTG.
Ive been mining Bitcoins for years now, i have a good sum im my wallet but i never plan to use them. Does this make me a bad person? Approximately yes.
Ben, I should've simultaneously copied and pasted all of my questions from the Spreecast over to here but here are a few... It seems like the conspiracy crowd has really latched onto the idea of Bitcoin as being a discreet form of currency. If Bitcoin is backed up by the internet why would people choose having a currency that's being tracked over say cash, gold, different commodities? Having a currency be tracked has negatives and positives, but it's overwhelmingly positive for the average consumer. Because it's tracked, you don't need to pay someone to move your money for you. There also are no chargebacks, which means merchants aren't getting scammed and passing those costs onto consumers. Theft costs everyone money. It's also very fast--transactions confirm in just 10 minutes, regardless of size or where it's going. Transferring dollars from here to China is very difficult--transferring Bitcoin? Just as easy as from anywhere else to anywhere.
My job is a mix of voodoo, intuition, science, and news. In USD, my percentage return calculated from investment to current valuation is about 300% over a little more than 2 months.
No, just gambling. In BTC, my percentage return calculated from investment to current valuation is about 425% over a little more than 2 months.
Anyway, how have the profits been from start to finish compared to the market? Using my average per-coin buy-in price, if I had just bought-and-held, I would have lost about 27% of my initial investment value.
Are you willing to disclose how much you have in your trading portfolio/what kind of profit you turn both % and $ wise? In USD, my percentage return calculated from investment to current valuation is about 300% over a little more than 2 months.
In BTC, my percentage return calculated from investment to current valuation is about 425% over a little more than 2 months.
Using my average per-coin buy-in price, if I had just bought-and-held, I would have lost about 27% of my initial investment value.
What would you say is the easiest method of shorting bitcoin or any other coin? For shorting Bitcoin or Litecoin, check here.
For other coins, there isn't really a good way yet, to the best of my knowledge. A few exchanges have plans to add short-selling, but Bitfinex is really the only one I know of that has.
What did you have for breakfast today. Didn't breakfast, was delicious.
Hey Ben, I know next to nothing about Bitcoin. I went to /bitcoin after seeing this AMA on your FB, and I noticed that everyone is going apeshit over "Gox". I have no idea what that means or why everyone is so sad/angry/suicidal. MtGox (which originally stood for Magic the Gathering Online eXchange) was the first prominent Bitcoin exchange. They've been going through some rather rough times lately, some of which I was an early cataloguer of here. In short, everyone is freaking out because the exchange may be insolvent. It's not really a big deal to Bitcoin as a whole, but it's certainly an obvious blow to credibility. In my view, people are primarily upset because MtGox has been a part of Bitcoin for a very long time, and it can be hard to let go of what we're used to. I expect that they will either fix the issues or will go out of business officially very soon.
Please explain what happened.
Tell me every artist in your iTunes. Daft Punk, detektivbyrån, Kid Cudi, Matisyahu, The White Panda.
Spotify for life, yo.
Follow up question, what % are you in BTC vs Fiat and when you are on the losing side of a trade do you find your self dumping in more to get right or do you pull the cord Unless my positions are on different exchanges or in different coins, they're all always 100% of what I'll put into that trade at entrance and exit. As a result, I end up with a binary choice: stay or reduce/close. I very rarely reduce position size, nearly always preferring to just end the position instead.
Last updated: 2014-02-25 04:57 UTC
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