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Official ShortNXT Thread + FAQ
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ShortNXT

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Re: Official ShortNXT Thread + FAQ
« Reply #100 on: June 29, 2014, 05:18:11 pm »

Your understanding of the calculation methodology is correct; it's the same way the well-established industry of inverse ETFs calculate their daily values.

In the examples you gave, ShortNXT winds up underperforming pure short (this will be the case when the price diverges one day and returns to/near its previous value the next).  However, in other cases, the math causes the value of ShortNXT to outperform (specifically, when you have back-to-back days in the same direction):

Nxt   shortNxt
100   100
105   95
110   90.25

-or-

Nxt   shortNxt
100   100
95   105
90   110.53

When NXT moved up 10% in the first example, ShortNXT only declined 9.75%.  In the second example, NXT declined 10%, but ShortNXT increased 10.5%.

ShortNXT has been operating for about 6 weeks and over that period, these two effects have tended to balance each other out.  Up until a few days ago, if you'd held ShortNXT from inception, you would've done a fair bit better than a pure short position; through today, the pure short would have outperformed by a few percentage points.
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Pilot

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Re: Official ShortNXT Thread + FAQ
« Reply #101 on: June 29, 2014, 06:26:07 pm »

I noticed that bluemeanie had started this thread.

ShortNxt what is your relationship with him? I don't know the whole story but know there was an incident with him scamming someone out of almost 1million NXT.
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ShortNXT

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Re: Official ShortNXT Thread + FAQ
« Reply #102 on: June 29, 2014, 06:49:37 pm »

Indeed he did start the thread. He introduced me to Nxt a few months ago and helped me get up to speed on how it works, introduced me to some community members, etc. He was then a big proponent of Nxt and AE at that time and he knew from our previous mutual participation on a different forum related to colored coins (which is how we were originally acquainted) that I was particularly interested in distributed asset exchanges.

I think it's very unfortunate how the whole nxtautodac mess unfolded. I've stayed basically mute about it on the forum (in part because frankly I don't know all the details myself), but I did for a time try to help move things toward resolution offline, since I've had some interaction with both bluemeanie and james.

As far as I'm aware, in light of james' restitution to investors, the remaining financial grievance is between the two of them.
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TheCoinWizard

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Re: Official ShortNXT Thread + FAQ
« Reply #103 on: June 29, 2014, 07:07:43 pm »

shouldn't it be 90.4761...   for the first example. As
95 - 5/105 * 95 = 90.4761
or else
(5/105 -1) * 95 = 90.4761

If not, I really wonder how you end up with 90.25, could you please show me the math there?

I know banks offer instruments with the same, according to me, flawed logic.

Either way, thanks for showing me that this can be in the advantage to the buyer when the market goes one direction.
Unfortunatly for the buyer, that is not how free markets tend to move.

And however I continue the math, once I get back to 100 for Nxt, shortNxt with me is always under Nxt.
for example:

NxtshortNxt
100100
10595
11090.47619048
10792.94372294
10495.54962171
10099.22460716

Could you please be so kind to show me an example where you get back to 100 for Nxt value and the shortNxt ends up higher or equal at 100.
« Last Edit: June 29, 2014, 07:12:13 pm by TheCoinWizard »
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ShortNXT

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Re: Official ShortNXT Thread + FAQ
« Reply #104 on: June 29, 2014, 07:27:30 pm »

90.476 is right - my apologies.  90.25 would've been the value if it'd declined by another even 5% on the second day, but of course, it doesn't (in the example, it declines by slightly less).

You're right that if it eventually meanders back to the starting value, the synthetic short will inevitably have underpeformed the pure short (i.e. be lower than where it started).  Again, this is the case with every inverse ETF (and similarly structured product) I'm aware of and is inherent to the documented calculation methodology. (Edit: it may not underperform net-net, even when it returns to the starting point with a lower value, since this is a "free" short, whereas a pure short could incur margin borrowing costs, particularly with volatile underlying assets.)

By the same token, if it continues to trend predominantly in one direction over time, it will accrue more and more outperformance vs a pure short.  Investors can decide for themselves whether NXT is likely to be relatively range-bound (and therefore underperform the pure short) or long-term trend-driven (more likely to outperform a pure short) and decide whether the expected deviation makes it more/less/equally useful a tool for them as a pure short would be.  For some investors, this makes it better suited as a short term trading vehicle than a long-term holding, which in fact turns out to be the way most people seem to use it.

Either way, I think the methodology is documented pretty clearly and again, is intended to conform to industry norms.  And whatever drawbacks associated with the mathematics' imperfect modeling of a pure short, there is of course the comparative upside of not having to post margin, incurring no fees as you would with an ETF (other than the 1 NXT tx fees), etc.

I appreciate your questions and clarification.  Let me know any others you may have!
« Last Edit: June 29, 2014, 07:34:18 pm by ShortNXT »
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TheCoinWizard

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Re: Official ShortNXT Thread + FAQ
« Reply #105 on: June 29, 2014, 08:11:43 pm »

90.476 is right - my apologies.  90.25 would've been the value if it'd declined by another even 5% on the second day, but of course, it doesn't (in the example, it declines by slightly less).

You're right that if it eventually meanders back to the starting value, the synthetic short will inevitably have underpeformed the pure short (i.e. be lower than where it started).  Again, this is the case with every inverse ETF (and similarly structured product) I'm aware of and is inherent to the documented calculation methodology. (Edit: it may not underperform net-net, even when it returns to the starting point with a lower value, since this is a "free" short, whereas a pure short could incur margin borrowing costs, particularly with volatile underlying assets.)

By the same token, if it continues to trend predominantly in one direction over time, it will accrue more and more outperformance vs a pure short.  Investors can decide for themselves whether NXT is likely to be relatively range-bound (and therefore underperform the pure short) or long-term trend-driven (more likely to outperform a pure short) and decide whether the expected deviation makes it more/less/equally useful a tool for them as a pure short would be.  For some investors, this makes it better suited as a short term trading vehicle than a long-term holding, which in fact turns out to be the way most people seem to use it.

Either way, I think the methodology is documented pretty clearly and again, is intended to conform to industry norms.  And whatever drawbacks associated with the mathematics' imperfect modeling of a pure short, there is of course the comparative upside of not having to post margin, incurring no fees as you would with an ETF (other than the 1 NXT tx fees), etc.

I appreciate your questions and clarification.  Let me know any others you may have!
Thank you for the quick and professional answer.
I am glad you enrich society with more options, I just wanted to be sure what this short exactly entails.
I still have a few others concerning the covering/backing of these assets,
as well as what is done with the incoming Nxt from the sale of shortNxt,
but unfortunatly I don't have the time for that now.

TCW
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BaiMangal

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Re: Official ShortNXT Thread + FAQ
« Reply #106 on: July 03, 2014, 03:14:44 pm »

I like your idea!
Will get some assets I think
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