Tricking the stats

Let’s have some “fun” with stats of “short” (and long) deals on spot market.

Assume we have 1 A worth $10. We open a “short” deal on spot market. Now we have our $10 back but no A. The price of A increases 100 % (instead of decreases) and finally 1 A would have been worth $20. The “short” deal now is at a loss of -$10.

But wait, we still have our $10!?

We could use the terminal and buy 0.5 A with it. Then we could add those funds to the deal and of course, the “short” bot sells the 0.5 A and we have our $10 back. Okay, let’s repeat that step so often until the deal’s loss is only -2%. Hurray, the price decreases by -3 % and we close our deal in profit - at least, that’s what the stats claim …

Find the mistake!

The question is whether one can rely on what the statistics of the bot provider tell us, since those do not know at what price an asset was bought and what else happened outside the deal.

Initial buy: $10 → 1 A
“Short” open: 1 A → $10
Price increase 100 %: 1 A is now worth $20
The “short” deal is at a “loss” of -100%: -$10

What can we do to get rid of that “loss”?

We use our remaining $10
Intermediary buy: $10 → 0.5 A
And use those as manual safety order (add funds)
“Short” add funds: 0.5 A → $10

And what do safety orders do?

They increase the total size of the deal, reduce the loss percentage and thus the required change to take “profit”. That is if we repeat the last trick several times we finally have increased the total size of the deal enough that the required change became e.g. -2 %.

What a luck - the price decreases by -3%, we reach our take “profit” and close the deal. Since we have grown our order size quite a lot the deal shows a pleasant gain now.

But is it really a gain?

Or maybe couldn’t we even take “profit” at all?

Probably the second. Even though we could close the deal now, we still only have our $10 to buy back our base currency. And with $10 we can only buy 0.5 A. The deal assumes a gain but it takes “profit” at a loss of 0.5 BNB.

What do the stats of the deal after taking profit show? -50% or -100% or something else?

Of course,

nobody should do that

Even though it might look like a great trick it isn’t. The result would have been the same if we simply had closed the deal at a loss. We had used our $10 and bought 0.5 A.

The difference is that with this optical illusion the deal might assume to be in profit finally. But on close it had to realize the loss.

But maybe it’s helpful to illustrate some kind of surprise that could happen, if one uses “short” deals on spot.

But to be fair let’s also check long deals!

The same optical trick could also be applied to long deals, if we leave the deal open, but sell the asset outside the deal and use the “gained” funds to add funds to the deal. But as soon as we try to close the deal with “profit”, we will notice that there isn’t enough base to be sold.

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