Fluctuation of ETP's NAV in Different Market Environments
ETP is a special leveraged product. The constant leverage multiple at the beginning of the day is realized through the adjustment mechanism. If the underlying assets produce floating profits, then the underlying positions will increase; if the underlying assets produce floating losses, then the underlying assets The position will be reduced. Because of this characteristic of ETP, the product is suitable for a specific market environment.
The NAV of ETP can be simply understood as the actual value of ETP, and the price of ETP is affected by the supply and demand relationship in the ETP secondary market, and the anchor net value fluctuates up and down. The following is the cumulative rise and fall performance of the corresponding ETP net value when the underlying asset price fluctuates.
Note: The following calculations are examples of the theoretical values and are not shown as actual investment suggestions.
1. The following is an example of the performance of ETP in the cyclical volatile market:
When the price of the underlying asset BTC returns to the initial price, the NAV of BTC*3 and BTC*(-3) will both decrease. Therefore, ETP ’ NAV will experience wear and tear under the volatile market, and the disadvantages are more obvious.
If you hold it for a long time, whether the product is long or short, you may be able to withstand the wear and tear of NAV caused by market fluctuations.
2. The following is an example of the performance of ETP during severe fluctuations in the day:
(It can be seen that at this time, after ETP triggered flexible position adjustment, affected by the shocking market, BTC*3 and BTC*(-3)’s NAV fell at the same time, and the leverage times of the underlying asset of BTC rise and fall was not 3 times. Happening).
- When the price of the underlying asset BTC rises by 11.11% within a day, the actual leverage of BTC*(-3) reaches -5 times. In order to prevent the underlying margin positions from being liquidated, it triggers the adjustment of positions from time to time;
- When the price of the underlying asset BTC drops by 11.11% within a day, the actual leverage of BTC*3 reaches 4 times. In order to prevent the underlying margin positions from being liquidated, it triggers flexible adjustments;
In the end, when the price of the underlying asset BTC returned to the initial price, the net value of BTC*3 decreased by 8.33%, and the net value of BTC*(-3) decreased by 13.33%. The intraday volatility of the market caused net value wear.
3. The following is an example of the performance of ETP in a unilateral rising market:
In a unilateral uptrend, the profit of 3x long BTC is higher than 3x long future, and the loss of 3x short BTC is less than 3x short future. Therefore, the advantage of leveraged ETP is more obvious in the unilateral upward trend.
4. The following is an example of the performance of ETP in a unilateral downtrend market:
In a unilateral dump, the profit of 3x long BTC is higher than 3x contract long, and the loss of 3x short BTC is less than 3x short contract. Therefore, the advantage of leveraged ETP is more obvious in the unilateral upward trend.
In the unilateral downtrend, the loss of 3x long BTC is less than 3x future, and the profit of 3x short BTC is greater than 3x future. Therefore, the advantage of ETP is more obvious in the unilateral downward trend.
Therefore, it can be seen that ETP is more suitable for short-term trading under unilateral market trends to expand revenue. Products in the long-short direction in the volatile market will cause NAV wear and tear, and the NAV loss may be more when the intraday fluctuations are severe. Please be careful not to hold for a long time and participate rationally.
In addition, you need to understand other risks of ETP:
(1) There is a possibility that the NAV of ETP can become zero or the product will be removed due to inherent market risks, high fees, slippage, rebalance algorithm frontrunning and any other perceived unknown risks associated with ETP.
(2) In order to avoid this risk in advance, the system will dynamically limit the maximum number of ETP positions based on market risk.
Therefore, if you sell part of the ETP products you hold and the system adjusts the maximum position limit, there is a risk that you will not be able to buy the previous limit. It is recommended that you trade ETP products with large fluctuations carefully.