Three Solutions for Crypto Traders When Markets Get Volatile
Bitcoin (BTC) is back! And so is the rest of the cryptoasset market. But their return has also heralded the comeback of market volatility.
While experienced traders have been rejoicing at intraday price movements of 5% to 15%, enabling them to make substantial daily gains, not everyone is rejoicing. For less experienced traders, sharp upswings in volatility can create more challenges than opportunities.
But if you are feeling lost, never fear! Cryptonews.com is here to help you understand more about three potentially value-adding solutions for crypto traders.
Learn what they are, how they work and – who knows? Perhaps they could provide you with help as crypto market volatility continues to intensify.
BTSE’s Multi-Currency Orderbook
BTSE, the BVI-based digital asset exchange and derivatives trading platform, has recently launched a multi-currency orderbook called the All-In-One Orderbook. Its masterminds claim it can let traders place orders in multiple fiat currencies.
Crypto exchange order books typically serve one trading pair, such as BTC/USD or ethereum (ETH)/tether (USDT), a pairing that is priced in a single base currency.
For international traders based outside the United States, that often means converting their fiat currency into USD or a dollar-pegged stablecoin to trade in the most liquid crypto trading pairs. As a result, international traders often lose money on their currency conversions and lose valuable time when it comes to placing the trades they want to execute when an opportunity arises.
Using tools like BTSE’s All-In-One Orderbook, however, traders can place orders in their home country’s fiat currency. The platform’s engine will attempt to match the order, essentially eliminating the need to conduct multiple transactions.
Bitcoin Options
Bitcoin derivatives have been a growing market since the world’s most popular coin went mainstream in 2017. Today, both institutional and retail investors can buy and sell options contracts on bitcoin and other digital currencies to hedge their risk positions and make leveraged trades.
During times of crypto market volatility, bitcoin traders can use options in two ways:
- to hedge large risk positions
- to bet on volatility.
For example, a trader who has leveraged long on a basket of cryptoassets could buy put their options on bitcoin with a six-month expiry date and a strike price of USD 10,000. This would effectively hedge the losses of the trade should the market collapse and bitcoin drop below USD 10,000.
If the market continues to rally, though, this same trader would instead benefit from the increase in the market value of their positions – and the now-worthless put option would simply expire.
That would mean the trader only loses the premium they paid for the options position – rather than taking a much heavier hit.
Conversely, an experienced options trader could use options on bitcoin to actually bet on market volatility.
For example, a trader could use so-called strangle tactics if they believe that market volatility is likely to increase.
A strangle is an options strategy that involves buying a call option and a put option on the same underlying asset with two different strike prices. This strategy can prove effective when you expect the market to move aggressively – but are unsure about the direction.
In the case of betting on increased volatility in the crypto markets, a trader could, for example, put on a strangle using bitcoin call and put options with strike prices at USD 10,000 and USD 13,000, for example.
If the market does make an aggressive movement, one of their options will be “in-the-money.” And, as such, the trader will generate a profit on that leg, so long as the value is higher than the cost of the other option.
Trading Bots
For traders who want to jump on the opportunities that increased market volatility provides, but aren’t sure they want to start actively trading in and out of positions, crypto trading bots could be an attractive option.
A crypto trading bot is a piece of software that lets traders automatically execute trading strategies without the need for human interaction on the part of the trader.
Simply put, a trader sets the bot up so that it performs specific actions based on predetermined data points, essentially automating your trading strategy.
Market-making trading bots, for example, are particularly popular in cryptoasset markets. Another type of software, named the mean-revision bot, is also becoming a popular choice among many professional crypto traders.
During times of high volatility, you could deploy a bot to engage in a technique known as “crypto scalping.”
Scalping is a strategy that derives from forex trading. But in the crypto world, scalping refers to when traders make a high number of trades based on technical indicators to generate small trading profits on winning trades throughout the day.
Although they might not be for everyone, trading bots can prove ideal for those attempting to execute such crypto scalping-type strategies. And they can really come to their fore at times like right now – periods of high market volatility.
