Market neutral trading offers several benefits to trader portfolios, including diversification from directional strategies, the ability to reduce the volatility of a portfolio, and cushion against a market decline.ĭiversification - To manage risk efficiently, traders combine strategies to diversify their returns over time. That said, the strategy does offer many benefits that help a trader to maximize profits without necessarily increasing exposure to risk. However, market-neutral trading strategies are not risk-free, unlike traditional arbitrage. Market-neutral strategies are excellent for the highly-volatile crypto markets, especially in recent times. In other words, it is a non-directional trading strategy where traders can generate profits regardless of bull or bear markets. Profit is determined from the relative price change between two assets instead of the direction each moves.įor instance, if a trader believes Bitcoin is overvalued and Litecoin is undervalued, he or she would open a long position in Litecoin and simultaneously open a short position in Bitcoin. What Is Market-Neutral Trading?Ī market-neutral trade involves opening long and short positions simultaneously to take advantage of inefficient pricing between crypto-assets. This strategy is known as market-neutral trading.
BINANCE CRYPTO PAIRS PROFESSIONAL
In traditional finance, synthetic trading pairs are a popular strategy among professional traders and it offers uncorrelated returns to the general market. In this article, we continue to explore the applications of synthetic trading pairs by developing trading strategies that offer a unique way of generating alpha across crypto markets. In a recent article by Binance Research, we explored the possibilities of constructing a synthetic trading pair with the use of perpetual swap contracts on Binance Futures. There are several risks and drawbacks traders need to consider before deploying this strategy. It offers several benefits to trader portfolios, including diversification from directional strategies, the ability to reduce the volatility of a portfolio, and cushion against a market decline.
A market-neutral trade involves opening long and short positions simultaneously to take advantage of inefficient pricing between crypto-assets.
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