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To win, you need to pick trading strategies where the benefits outweigh the risks. This is why I want to share the most popular trading strategies on 1Fox with you, according to our data:
The speculative long/short trade
By far the most popular trading style is to speculate on rising or falling prices. If you believe, for example, that Bitcoin gets banned by a big country in the near future, you could open a leveraged short trade on BTCUSD and profit from a falling market price. If you believe that big financial institutions are going to invest in Bitcoin, you could open a long position and profit from the expected market price increase.
Hedging your cryptocurrency (Bitcoin) against price declines
Opening short positions is great way to hedge your cryptocurrency against price declines.
Consider the following example: The Bitcoin price is at 9000 USD and you own exactly 1 Bitcoin. You have the fear that the Bitcoin price could decline in the coming months and want to keep your USD value. This can be achieved by opening an unleveraged BTCUSD short position with a size of 1 BTC:
If the price falls from 9000 to 5000 you would profit with +0.8000 BTC. The total account balance of 1.8 BTC at a Bitcoin price of 5000 is exactly 9000 USD, your initial USD net worth. If the price rises from 9000 to 14000 you would lose -0.3572 BTC. However, the remaining account balance of 0.6428 BTC at a price of 14000 is again 9000 USD.
Lending fiat currency
Trading platforms usually have a system that keeps the index price on pair with the traded price. On 1Fox for example, this is called the funding rate and it can be expected that this rate is usually positive. This means that long positions pay and short positions receive funding payments in the long term. Opening unleveraged short positions can be interpreted as lending fiat currency to long traders.
Consider the following example: The average funding rate is 0.05% per day on the BTCUSD market and you intend to "lend" USD to others. This can be done by converting USD to BTC, transferring these BTC to 1Fox and opening an unleveraged short position. It the above section (Hedging your cryptocurrency (Bitcoin) against price declines) we learned that short positions keep a fixed value in terms of USD no matter how the market price moves. If we hold such a short position over a longer period of time and the funding rate remains positive, the USD worth of the position will constantly increase. To "realize" these profits, you have to close the position and convert your BTC back to USD.
A side-effect of this trading strategy is that you are virtually not exposed to BTCUSD price movements, which is certainly a pleasant feature for some traders.
Arbitrage trading
Arbitrage is defined as the purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy. This results in immediate risk-free profit.
An example: Imagine that you can enter the BTCUSD market (go long) at a price of 8000 and exit it at 8050 on another exchange or trading platform. Making these two trades will not change your BTC or USD exposure, but you will profit from the price difference instantly.
Of course there are also more advanced strategies like placing a Limit Order at a price below/above the potential entry point of another market. Once your Limit Order gets filled you can instantly "rebalance" your exposure by making a Market Order on the other trading platform with an instant profit.
Market making
A market maker and places an order both on the buy (long) and the sell (short) side of the order book hoping to make a profit on the bid-ask spread. Especially in times of low price volatility, the volume of buys and sells will be roughly the same. A market maker can generate profits by constantly "buying low" and "selling high". On most exchanges there are many competing market makers which rely on sophisticated trading algorithms.
If you are interested in becomming a marketmaker on 1Fox, there is a fundamental trading bot that you can build on if you are able to program.
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What trading strategies have you used in the past? With which outcome?
