CeFi & DeFi Flashcards
Notional Value
Total value of a position that derives interest or other flows.
Basically, share X is valued at $50. At a leverage of 2x, 100 shares of stock would only require $2500 of capital to purchase. What we have to remember is that we have $5000 of notional value.
CFD
Contract for difference
Differences in the settlement between the open and closing trade prices are cash-settled. Popular in FX and commodity products.
Illegal in the US
AMM
Automated Market Maker
Simplest version: Constant Product Invariant
d ∗ c = k
(First review -> recreate!)
Curve for example, uses a special invariant for their stablecoin pools!
Delta (in trading)
Delta (Δ) is a risk metric that estimates the change in price of a derivative, such as an options contract, given a $1 change in its underlying security.
Long put options always have a delta ranging from -1 to 0, while long calls always have a delta ranging from 0 to 1.
[Assumption: 2x long perp has a delta of 2. A Leveraged Token maintains a constant delta through rebalancing]
Eigenkapitalrendite
ROI (return on investment)
Eigenkapital in a leveraged investment
Margin
DeFi primitives
basic building blocks such as simple token swaps (DEXs) or loans (money markets) that may provide the foundation for more complex protocols.
long-tail assets
In finance, the term “long-tail asset” refers to an investment or financial instrument that exhibits a higher degree of uncertainty or risk compared to mainstream or more commonly traded assets.
The concept of the “long tail” originates from statistics and probability distributions, where the “long tail” represents the portion of a distribution that contains rare or extreme events.
Long-tail assets often have a lower trading volume and liquidity compared to mainstream assets, making them less frequently traded in the financial markets.
Market makers
Market makers (MM) provide buy and sell orders, usually with a spread. They make money on that spread. Algo trading is crucial here, because they need to make millions of trades a day.
LTV
Loan-to-value ratio
Open Interest
Open interest is the total number of futures contracts held by market participants at the end of the trading day
Calculated by adding all the contracts from opened trades and subtracting the contracts when a trade is closed
Difference to volume: Volume increases when a trade is opened OR closed.
Basis points
1 bps = 0.01%
Maintenance Margin
Minimum margin required to maintain a position open.
For instance, if the maintenance margin is set at 150 bps or 1.5% for a $100,000 position with $5000 in initial margin, the trader must maintain an account balance of at least $1,500 to avoid a margin call.
