How to implement an investment strategy for trading crypto pairs
Over the past year, the growing popularity of all types of cryptocurrencies has led to this emerging asset class becoming an integral part of many retail and institutional investment portfolios. As a result, various strategies are being adopted that allow investors to make the best use of the volatility of cryptocurrency exchanges.
This article will look at pair trading, which has become the leading cryptocurrency investment strategy in 2021. We will determine how pair trading in cryptocurrencies works and which pairs are best used for trading? We will also look at how the investment strategy of paired cryptocurrency trading can be used to profit on both rising and falling cryptocurrency markets and what potential risks arise in this case.
What is paired cryptocurrency trading?
Often called a market-neutral strategy, since you can profit in any direction of market movement, pair trading in cryptocurrencies involves simultaneously buying and selling two closely correlated currencies with the expectation that one of them will outperform the other. The idea is that you will profit from the fact that the purchased currency (long position) will rise in price more than the sold currency (short part) will fall in price.
This market-neutral strategy is particularly suitable for crypto investing due to the high volatility that causes frequent and rapid price ups and downs.
What are the best cryptocurrency pairs to trade?
To implement a strategy for trading cryptocurrency pairs, you need to determine which teams are most popular on various exchanges. In crypto-fiat currency pair trading, the most popular option is to trade a coin against the US dollar, while in crypto-currency pairs, bitcoin is the best choice due to global demand.
Bitcoin pair trading is popular because BTC offers countless trading opportunities as part of a pair. It is listed on all exchanges, has a high market capitalization, and can be exchanged for a large selection of different currencies. Ethereum is almost as popular, thanks to the increased usability of smart contracts available on its platform and USDT, which has gained tremendous popularity because it is the leading stable coin with an exchange rate pegged to the US dollar. Common pairs are BTC/ETH, USDT/BTC, BTC/LTC, and ETH/LTC.
Liquidity is significant because you can quickly and without delay find buyers. Therefore, you need to check the trading volume of your chosen coins, as the constant opportunity to sell means that a bear market will not make you lose money by accepting a low exchange rate.
What are the disadvantages of trading cryptocurrency pairs?
The main disadvantage of using a cryptocurrency pair trading strategy is that you can trade cryptocurrencies but at the same time lose on the next big jump in the bitcoin exchange rate. Being a market-neutral strategy, pair trading cryptocurrencies will not bring you financial benefits if the price of bitcoin rises sharply.
In addition, it is a form of investment that requires experience, market knowledge, and a lot of time in front of the screen, studying supply/demand prices, analyzing price charts, watching the market, and making deals.
What are the risks of paired cryptocurrency trading?
When it comes to pair trading cryptocurrencies, there is a certain degree of risk:
The best cryptocurrency trading pair consists of two coins with a high correlation. This means that two cryptocurrencies are rising or falling in price relative to each other, moving either in one direction or opposite. This gives a specific predictive value.
However, correlations are constantly changing, so breaking the correlation is a potential risk, as your pair trading may suddenly lose money if your currencies move in unexpected directions.
This investing strategy in bitcoin involves storing your coins on the exchange, which is not without risk. Exchange wallets are vulnerable to hacking and, unfortunately, have a history of losing funds of cryptocurrency owners. More than $2 billion has been hacked from cryptocurrency exchanges so far.
Is there a less risky strategy for investing in bitcoin?
Fully automated crypto-arbitrage and hybrid systems are implemented on the Intelfin Global platform, which offers exceptionally low-risk strategies that do not require the user to have prior experience and a long time in front of the screen to get the best of the available solutions to increase capital.
In a sense, the systems are similar to an investment strategy for trading cryptocurrency pairs since you can trade in a rising or falling market. However, since you are not making money on market volatility but taking advantage of price inefficiency on exchanges, this is a much safer strategy for investing in digital assets.
Although the investment strategy of trading cryptocurrency pairs allows you to get potentially large profits regardless of the general direction of the cryptocurrency market, it requires significant time and knowledge of the need and taking a considerable risk. Unlike crypto-arbitrage, no effort is needed here. As soon as you have registered and activated one of the types of membership of the Intelfin ecosystem, the risks become practically zero while providing unprecedented profits.
You can achieve your goals even if you don't have thousands of dollars available, and at the same time, you don't need experience in finance.
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