【Investment and Financial Management】What is Dual Currency Investment | The Risks Behind Super High Returns

After some research, I believe that dual currency investment is similar to a relatively high-risk operation in traditional finance, that is, the seller of options, so before understanding dual currency investment, you should first understand the concept of options.

1. Right to choose

An option is a contract that sets the price and expiration date of an asset, and to establish this contract requires the buyer and the seller to be opposites. For the buyer, he has the right to choose whether to buy or sell the asset at the price in this contract before the expiration date; for the seller, he will collect the buyer's premium, and before the expiration date, as long as the buyer Choosing to buy or sell the asset at the price set in the contract, the seller must fulfill the contractual obligation to do business with the buyer.

It can be said in the vernacular that for the person who buys the option, what he buys is the "right" whether or not to trade before a certain time. The "rights" of the contract are delegated to the buyer, and the seller must cooperate when the person who buys this right chooses to conduct a transaction before the agreed expiration date.

"Types of Options"

As mentioned above, in addition to the price, the option will also need the right to exercise the expiration date. There are two types of options on the expiration date, namely:

1. European-style option, the person who bought the option must decide whether to exercise the option or not at the expiration date.

2. American-style option, the person who buys the option can freely decide whether to exercise the option at any time before the expiration date.

The American option is more favorable for those who buy the right, and the European option is more favorable for the person who sells the right. Therefore, when using the option, you should pay attention to the regulations adopted by various brokers or exchanges. , may add some odds to your investment strategy.

"The Role of Choice"

Here, let’s define the two roles in the contract in English. The person who buys the option will be called “Buy”, and the person who sells the option will be called “Sell”.

Then, because for a market, you can be bullish and bearish, so there are two types of options, namely the right to buy, referred to as "Call" for short, and the right to sell, referred to as "Put" for short. ".

So if you are good at mathematics, you will know that 2 x 2 = 4, and there will be four types of options, namely:

1. "Buy Call", the right to buy, means that the buyer believes that the price will rise above the agreed price before the expiration date, and then wants to buy the asset at a lower price and make a profit.

2. "Buy Put", the right to buy and sell, means that the buyer believes that the price will fall below the agreed price before the expiration date, and then wants to sell the asset at a higher price to profit from it .

3. Sell the call option "Sell Call", sell the right to buy, indicating that the seller believes that the price will not rise above the agreed price before the expiration date, and wants to collect some premium as a profit.

4. Selling the put option "Sell Put", selling the right to sell, means that the seller believes that the price will not fall below the agreed price before the expiration date, and wants to collect some premium as a profit.

In dual currency investment, you will usually see "downward exercise" and "upward exercise", which are actually the seller of the option (Sell), so we will focus on selling the call option (Sell Call) ) and Sell Put for a more in-depth analysis.

2. What is dual currency investment

The concept of dual currency investment originates from the dual currency investment in traditional finance. The English is Dual Currency Investment (DCI). The concept is like a foreign exchange deposit plus a financial commodity with a sell option. Here, let’s take a look at the official explanation of Binance’s dual currency investment:

There are two types of dual currency investment products: "Upward Exercise" and "Downward Exercise".

If the settlement price of a rising exercise product is higher than (rising) the strike price, the product will be "exercised".
If the settlement price ≥ the exercise price, the product is "exercised"
If settlement price < exercise price, the product is "not exercised"

If the settlement price of a down exercise product is lower than the (down) exercise price, the product will be "exercised".
If the settlement price ≤ the exercise price, the product is "exercised"
If the settlement price > the exercise price, the product is "not exercised"

For these two types of dual currency investment products, if the product is not exercised , you will receive income in the investment currency . If the product is exercised , you will receive benefits in the alternative currency .

Hmm... The first time I read it, I couldn't understand it at all. I also felt that the explanation of the brokerage company or the exchange was rather blunt and difficult to understand. In this section, let's ignore how the premium is calculated. Is this easier to understand? Here are divided into up exercise options and down exercise options. No matter which option it is, there must be four major options: "price", "quantity", "rights exercise expiry date" and "premium" The essential.

"Rising Exercise | High Price Take Profit"

The option tool corresponding to the up exercise option is Sell Call. If the current BTC market price is 45,000, I have a BTC in my hand and I think it will not exceed 50,000 in seven days, then I can sell a copy of "After seven days, I can choose to buy Don't use the price of 50,000 to buy the right of this BTC in my hand. If someone really buys this right and pays the premium, it is considered a deal.

Here it can be seen that for those who use dual currency investment for upside exercise, they sell the right to "choose whether to trade" and get the premium.

The time quickly comes to seven days later, and there will be two results at this time:

1. BTC did not exceed 50,000, so the person who bought the right is not a fool. If he chooses to trade, it means that he will spend 50,000 to buy BTC, then it is better to give up the transaction and go to the market to buy cheaper BTC, so this option is rejected by the other party. Ending with the option to cancel the transaction, we get the premium paid by the buyer, as well as the original BTC in hand.

2. BTC has exceeded 50,000, and it may be sprayed to 55,000. Of course, the person who bought the right will choose to trade. At this time, our BTC will be sold at the amount set by the option at that time, which is 50,000, so we finally get the buyer. The premium paid, and the $50,000 stablecoin earned by selling one BTC.

If we originally wanted to sell BTC at 50,000, normally what we would do is to place a sell order to sell BTC at $50,000. If we use an upward exercise tool, even if it really breaks through 50,000 And if you sell it, change your mind. Anyway, it would have been sold for 50,000. Because of the use of the upward exercise tool, an extra premium was charged in addition to the transaction, so I will call it a high-price take-profit. a strategy.

"Falling options | bargain hunting"

The option tool corresponding to the downside exercise is Sell Put. If the current BTC market price is 45,000, I have enough USD stablecoins in my hand and I think it will not fall below 40,000 in seven days, then I can sell a "seven-day" After that, you can choose whether to sell me a BTC at a price of 40,000". If someone really buys this right and pays the premium, it is considered a deal.

Here it can be seen that for those who use dual currency investment to exercise down options, they sell the right to "choose whether to trade or not", and they get the premium.

The time quickly comes to seven days later, and there will be two results at this time:

1. BTC did not fall below 40,000, so the person who bought the rights is not an idiot. If you choose to trade and say that you want to sell BTC to us at 40,000, then you might as well give up the trade and sell BTC in the market to get better results. The price of this option is ended by the other party choosing to cancel the transaction, and we get the premium paid by the buyer, as well as the USD stablecoin originally in hand.

2. BTC has fallen below 40,000, and it may fall to 35,000. Of course, the person who purchased the right will choose to trade. At this time, our USD stablecoin will be purchased at the amount set by the option at that time, that is, 40,000 to buy a BTC , so in the end we get the premium paid by the buyer and a BTC purchased.

If we originally wanted to buy a BTC at 40,000, normally what we would do is to place a buy order to buy BTC at USD 40,000. If we use the tool to exercise the option down, even if it really falls below 40,000 But if I bought it, I changed my mind. Anyway, it would have been sold for 40,000. Because of the use of the down exercise tool, an extra premium was charged in addition to the transaction, so I will call it a kind of low-price bargain hunter. Strategy.

3. Income calculation of dual currency investment

The income referred to here is the premium obtained when selling the option, and the premium is the annualized rate of return seen in the dual currency investment interface. This annualized rate of return will be priced by the needs of both buyers and sellers in the market. The price that fluctuates over time, the theoretically impossible to achieve or the farther the expiry date, because there are many uncontrollable factors, the annualized return will naturally be lower. , the formula for revenue is:
Profit = total amount invested x (premium annualized rate of return % x total days / 365(year))

The total amount received when the time is up will be:
Total amount received = total amount invested + profit

"Rising Exercise"

We sell a right of "7 days later, you can choose whether to buy this BTC in my hand at a price of 50,000". Assuming that the premium is 40% of the annualized income, the total amount is a strike price of 50,000 BTC, there will be two situations on the delivery day after seven days:

1. BTC does not exceed 50,000, the premium income we get will be the 1 BTC invested multiplied by the seven-day 40% annualized income, 1(BTC) x (40% x 7 / 365) = 0.007671232…, plus The principal of 1 BTC originally invested in the platform will receive a total of 1.007671.. BTC.

2. When BTC exceeds 50,000, the premium income we get will be 50,000 USD in exchange for the principal of 1 BTC, multiplied by 40% annualized return for seven days, 50,000(USD) x (40% x 7 / 365) = 383.561643835…, plus 50,000 USD which is the principal we sold at 1 BTC = 50,000 USD, and finally received a total of 50383.5616..USD.

"Down exercise"

We sell a right of "seven days later, you can choose whether to sell me a BTC at a price of 40,000". Assuming that the premium is 40% of the annualized income, the total amount is 40,000 USD, and there will be a delivery date in seven days. Two cases:

1. BTC did not fall below 40,000. The premium income we get will be the 40,000 USD invested multiplied by the seven-day 40% annualized return, 40,000(USD) x (40% x 7 / 365) = 306.8493150…, plus The 40,000 USD originally invested in the above, a total of 40306.84..USD was received back.

2. When BTC falls below 40,000, the premium income we get will be 1 BTC exchanged for 40,000 USD principal, multiplied by 40% annualized return for seven days, 1(BTC) x (40% x 7 / 365) = 0.007671232…, plus the principal of 1 BTC we bought at 1 BTC = 40,000 USD, and finally received a total of 1.007671.. BTC.

4. Example of Exchange Interface

Many centralized exchanges such as Binance, Pionex, Bybit, WhaleFin, etc., all provide dual-currency investment services. The recent market conditions are not very good. After you read the article and understand the risks, you still want to use dual-currency to build wealth gradually. You can try it at the bottom. Here is an example of Binance's ETH/USDT dual-currency wealth management.

It can be seen that I am planning to sell a right of "I can choose to sell my equivalent ETH at a price of 2,800 USDT after three days", then 129.55% of the annualized remuneration can be invested during these three days. 1.06% of the total capital (applicable formula: 129.55% x 3 / 365), and if the currency price falls below 2,800 or even returns to zero, then we are very likely to earn interest but lose the principal, so we should think twice about using it .

In addition, if you have not applied for any exchange, please read the previous introduction article: [Investment and Financial Management] Binance | The world's largest cryptocurrency exchange .

V. Conclusion

Dual currency investment is similar to a wealth management product that sells options, that is to say, this operation will sell "the right to trade at a certain price at a certain point in time". With the above example, it should be easier for you to understand , this operation can theoretically be said to have limited profit but no upper limit of risk. The source of profit is to sell the rights to receive the premium as interest, but the risk is that if the previously set price is exceeded, we will be forced to high prices Acquisition is selling at a low price. If our original currency was borrowed, it is possible to lose all the money or even become a debt. Therefore, this type of financial product is not recommended to borrow money to play with leverage.

But I still have to emphasize that there is no right or wrong in derivative financial products. It only depends on what strategy the user uses to use these tools. If you intend to trade at a certain point, using dual currency investment is better than using dual currency investment. Generally speaking, in the form of pending orders, you can earn more premiums, so why not do it?

Finally, I would like to raise a question that I don’t understand. Since there are buyers and sellers of options in traditional finance, for dual currency investment, who bought the rights we sold? Or is it another financial commodity?

Finally, thank you for taking the time out of your busy schedule to read my articles. If you still like these content, I hope to get your follow-up and support. You are also welcome to click this link to find me on other platforms .

See you next time o((>ω< ))o~

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