NEW! We're launching Market Neutral Strategy
The crypto market is volatile. In fact, it’s one of its most known characteristics that allows many cash out a big prize. However, some people are not ready to take a risk and would rather prefer to have stable earnings. So how do you choose the right earning strategy?
Returns vs risk
Low risk corresponds to low returns and vice versa. Depending on your personality, you can choose risk-averse or risk-taking strategies. The former is much less nerve-wracking than the latter, yet it can’t deliver you triple digits. However, risk aversion has its perks – you get 5-20% APY on your money without massive changes in both directions. Here are some examples of high and low risk earnings.
Stablecoin lending
Pegged to the USD, these tokens are equal to a US legal tender, making it a low-risk earning tool in the crypto world. However, lending protocols and stablecoins themselves remain riskier than bank savings accounts. Yet, the former delivers on average 5% APY, while the latter can offer around 0.06% APY.
Binance Earn
Binance Earn can possess both high and low risks depending on the assets. If the market is in the downfall, you risk losing the fiat value of your crypto funds apart from stablecoins that remain pegged to a fiat currency. APY for crypto can reach 120%, while for stables, it stands at around 10% for deposits under $2k, 3% for deposits in between $3-75k, and 1% for deposits over $75k.
Luna
Luna’s UST has been promoted with 20% APR and low risk. However, as it became evident recently, such a high rate can lead to a massive downfall. After a tremendous UST de-peg, Luna lost 99% of its value, falling from $80 to $0.00142 in a matter of days.
What happens If market falls?
If the market is in a downward movement, you can endure a loss unless you employ a hedging mechanism.
Hedging is a strategy that protects your funds from value loss. It is commonly executed through shorting, where some of the assets remain intact, and others take advantage of the market downfall.
Financial markets have a long history of using hedging. In fact, stock exchanges gave birth to hedge funds. Yet, not everyone earns on n such funds due to an entry barrier. For example, in order to invest in Vanguard VMNIX, you must have at least $5 mln. However, you can employ hedging tactics like shorting the crypto futures market through Market Neutral Strategy.
What Is futures?
Futures is a contract that fixes the price for the buyer and seller. Imagine you want to buy 1 ETH worth $3,000 as you expect the price to reach $4,000. If you are not ready to spend right now, you can make a contract with an obligation to pay $4000 to the seller by the end of term. That’s futures in a nutshell.
Hedging with futures
Why hedge if you can just sell crypto assets and buy it back after the correction? There could be several reasons:
Downward movement affects all assets in a portfolio. Therefore, it is better to open a short position to secure your funds.
Normally, futures are a bit more expensive than spot assets. As the date of the futures contract nears the gap closes, giving the investor a small additional profit.
For example, while holding a long position in ETH, user may open a short position in the futures contracts. In case of a correction they will profit on futures, a compensation for the loss from a crypto market decline.
Market Neutral Strategy works in a similar way. Our algorithm automatically buys spot assets and shorts them on futures over and over again. That way, we secure earnings via the funding fee, and maintain a perfect balance.
We make return predictions based on data over the past few months. The forecast of negative funding fees prompts us to remove contracts from the portfolio and allocate capital to contracts with positive funding fees.
If the market is too volatile and funding fees are highly negative, we will exit all positions, thus saving the capital.
How Market Neutral Strategy works
Stoic’s first Market Neutral Strategy is Fixed Income. Check out the perks:
No lock-up: You can withdraw funds at any time with the accumulated interest
Your funds remain in your Binance account, there's no need to transfer them to a third-party exchange
No limits: Earn the same return with $1000 or $1 mln
3x Binance Savings: Market Neutral Strategy offer a much higher return
Market Neutral Strategy has little-to-no exposure to USDT (as it uses USDT only for trading and portfolio rebalancing, so 99% of the time it has no exposure to USDT), and has no exposure on other stablecoins at all. The funds stay in USD via USD futures pairs on Binance.
Fixed Income strategy was specifically developed for risk-averse users. It is necessary for Binance and other exchanges to keep spot and futures prices about the same. The exchange achieves that by stimulating the flow of liquidity into the futures market with a funding fee. The funding fee is a commission paid out to (usually) futures sellers every 8 hours. The interval is determined by Binance.
In theory, anyone can utilize this earning mechanism by opening long and short futures positions, thus getting a funding fee.
However, if you are not careful, you can lose track of your positions and endure a loss. To avoid it, you can use automated solutions that can look after your trades and execute an action right on time.
By the rules of investment theory, it's best to have a portfolio consisting of several assets rather than just one. BTC is still king and decides the crypto market's course. Yet, some assets grow and fall faster than Bitcoin, and have better funding fees. Thus, by having a balanced portfolio, you can receive stable returns.
That's what Fixed Income strategy offers. It is an automated solution possessing a balanced portfolio with the capability to act when the market demands it.
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