Even while the market is crashing – By a former Goldman banker, part 1/4
The basic concept – Cryptocurrency futures arbitrage
A former Goldman banker gave us some great insights into making consistent money through futures arbitrage in the crypto market. He made $20,000 through this trading strategy. A 40% annual fixed profit!!
It is a simple trading strategy that allows to secure high profits from the cryptocurrency boom without being exposed to the infamously large price swings of cryptocurrencies. All popular news outlets have run stories about futures arbitrage in recent weeks but so far it is still unclear for many traders about how easy it actually is to implement in their own trading. We break it down into 4 simple steps that any trader could implement in literally 5 minutes!
How to start
Create an account on Binance and sign up for spot and futures trading. Read through our strategy and decide if you want to cash in by executing this 5-minute trade which can bring major returns.
The Underlying Principle – “Cash and Carry”
The cash and carry trading strategy has been around in many markets for as long as trading itself. The idea behind this strategy is to buy the underlying asset such as a commodity or a given bond in the spot market (for the “cash price”) and sell the same amount of the asset in the futures market for a higher “futures price”. The different between the futures price and the cash price is called “carry” – when positive, it can secure a fixed profit.
Cash and Carry in Crypto Markets
While in classical markets the “carry” is typically a very low number of percentage points and gets easily eaten up by the cost of storing the commodity purchase in the spot market (you can’t simply put your gold into an electronic wallet), the carry in cryptocurrency markets can be up to 40% annualised without any storage costs! You read right, this means up to 40% fixed profit.
How it works – A simple example
The price of Bitcoin today is say $30,000 but the COIN-M futures price maturing on 24th September 2021 trades at $33,000. You buy one Bitcoin today and sell the Sep-21 COIN-M future and hence lock in a carry of $3,000. The idea is to buy Bitcoin now and agree to sell it at a higher price in the future and pocket the difference.
If the price of Bitcoin goes up you earn money on the Bitcoin you own (you are “long”) and lose the same amount of money on the COIN-M future which you have sold (you are “short”). This means that you are protected against upwards and downwards movements of Bitcoin (you are “delta hedged”) and make a fixed profit of $3,000 at maturity irrespective of where the Bitcoin price goes.
The carry of $3,000 in this example translates into a profit of 10% for an investment of only 3 months. In annualised terms this represents a profit of about 40%, assuming you do the same trade 4 consecutive times over a time period of 12 months. This is a full 40% more than your bank gives you on your deposits!
Do remember that you will need to open an account on Binance to make this trade. You don’t need to invest as much as the Goldman banker we spoke to. A small deposit of $100 can always get you started off. Stay smart to make consistent profits!
To continue reading about this strategy please follow our next 3 steps in the coming few days: How to execute this strategy on Binance, Why the crypto futures arbitrage strategy works, and What is the hedge sizing required to make futures arbitrage work with crypto.
The Information contained in or provided from or through this website is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice. Crypto trading is highly risky and can result in financial losses. You should assess the risk before putting in your money.