The cryptocurrency market is notoriously volatile, with some cryptocurrencies experiencing more volatility in a single day than many traditional financial instruments experience in an entire week.
While this volatility has made cryptocurrencies some of the most attractive assets for speculators and investors, it also brings with it significant risks – as the market can experience significant adverse price swings, which can quickly push investors down markets. I can delete.
But while some investors struggle to make a profit when the market is in the red, others are well prepared, and already have a variety of strategies to maintain value or even turn a profit. Leverage platforms and strategies regardless of how the market performs.
Here’s how they do it.
decentralized options trading
Cryptocurrency trades can be broadly divided into two types: long and short. Those who are trading long are looking for profit when a cryptocurrency asset appreciates in value, while those who are trading short are looking for profit on its decline.
But while most traders know how to speculate on the upside, comparatively few are able to speculate on the downside – mainly due to the limitations of spot exchange platforms, as they usually short the asset. does not provide the ability to.
This is why experienced traders prefer to trade options instead – which are a type of derivative contract that gives the holder the right to buy or sell a specific asset at a specified price if it is to trade a certain amount during a certain window. goes beyond the limit. These can be used to easily predict whether an asset will appreciate (eg by buying a call option) or decline (eg by buying a put option).
Until recently, most options trading took place on centralized platforms. But due to limitations in the types and variety of options available, many more sophisticated options traders now prefer decentralized options trading platforms – including premium.
What is this?
Interesting vaults in a completely new UI for Premia Option AMM
All disclosed June 11 @ 18:00 UTC . Will be done
– Premia – Options Platform (@PremiaFinance) June 5, 2021
There are many reasons behind this, but mostly due to the increased flexibility provided by decentralized alternatives. For example, traders are able to use Premia’s options creation tool and decentralized marketplace to create their own individual options contracts and then source liquidity for these.
This allows traders to go long or short on the asset of their choice, rather than relying on the potentially restrictive range of options contracts available on centralized platforms. As a result, experts are increasingly taking advantage of platforms such as Premia to hedge their positions and lose profits when the market turns bearish.
The most common way that traders make (or attempt to make) profits in most markets is by speculating on the direction of price movement, such as through swing or day trading.
While many traders are incredibly successful at this, most traders are unable to make a profit through speculative trading. Instead, most have to suffer. it is double case a Bear Markets, where profit opportunities are more scarce, as most assets are on a strong decline.
However, there is a way to obtain more reliable profits regardless of the surrounding market conditions, by engaging in a practice known as arbitrage. It is essentially the process of taking profit before immediately selling it on another, before buying an asset on one platform to lock the difference in price in the form of profit.
Arbitrage opportunities exist when an asset is largely traded across two or more platforms – for example, if bitcoin was trading at $30,000 on one platform and $35,000 on the other, you would first One can buy 1 BTC from the platform, transfer it to another, and sell it to lock in a profit (minus fees) of $5,000.
Due to the volatility of most cryptocurrencies, these opportunities are quite common and are not very challenging to execute. However, it should be noted that these opportunities are usually extremely momentary, whereas those able to execute large orders (in absolute value terms) will fare best as fees can cut into profits deep.
Like everything, there is still some risk involved with arbitrage, but with the right tools, time and skill, it can be a safe way to profit in any market.
to provide liquidity
If you have ever traded on a cryptocurrency exchange, you must have already worked out a simple truth – no matter how the market moves, cryptocurrency exchanges always win.
This is because these exchanges always get a cut in trades regardless of whether the individual is winning or losing. But while this revenue stream was largely confined to the shareholders of centralized exchanges, the advent of decentralized exchanges and permissionless liquidity pools has democratized access to trading fee revenue.
Right now, there are more than a handful of decentralized exchange protocols that allow users to pool liquidity and share in the fee revenue they generate – some of the most popular options include uniswap and the curve on Ethereum, and pancake swap On Binance Smart Chain.
A schematic of the Uniswap liquidity pool. (image: Uniswap)
The way it works is simple. By contributing to a liquidity pool such as USDT/USDC, the investor owns a portion of that pool. The trader is charged a fee (eg 0.3% of the trade size on Uniswap or 0.2% on PancakeSwap) whenever liquidity is added to or taken from the pool. This revenue is then distributed proportionately to all liquidity providers.
Due to the intricacies of Automated Market Makers (AMMs) and continuous product formulaVolatile assets added to a liquidity pool (such as ETH/WBTC) may be subject to temporary losses (ILs). In many cases, revenue from fees exceeds any potential IL, but many liquidity providers avoid this issue almost entirely by contributing only a pure stablecoin pool – which is associated with little or no volatility. suffer from loss.