Crypto Pair Trading: How to Make Money with a Market Neutral Crypto Trading Strategy
Written by ABC AUDIO on September 3, 2022
Crypto trading is typically associated with high risks and potentially high returns. However, there are also lower-risk trading strategies that crypto traders can deploy.
Read on to learn about crypto pair trading, how it works, and how to make money in a bear market using the market-neutral trading strategy.
What is a crypto trading pair?
A cryptoasset trading pair is a set of two cryptoassets that can be traded for each other. The value of one asset is measured in relative terms to the other asset that it’s paired with.
An example would be BTC/ETH, which is one of the most popular crypto trading pairs as it enables traders to trade bitcoin for ethereum.
How pair trading works?
Pair trading is a market-neutral trading strategy that allows traders to place bets on one asset versus another while remaining unaffected by the overall market direction.
By opening a long position and a short position on two comparable cryptoassets with a high correlation, traders can generate a trading profit if the cryptoasset they went long outperforms the cryptoassets that they went short.
For example, if a trader believes that bitcoin SV (BSV) will continue to lose value against BTC, they could enter into a BTC long, and BSV short position with the same amount at risk on both positions. In this instance, if BSV drops more in value than BTC by the time the trader closes out both positions, the pair trade will be “in the money.”
https://www.hihonor.com/my/club/topicdetail/topicid-75290/
https://www.hihonor.com/my/club/topicdetail/topicid-77883/
https://www.hihonor.com/my/club/topicdetail/topicid-77885/
https://www.hihonor.com/my/club/topicdetail/topicid-77887/
https://www.hihonor.com/my/club/topicdetail/topicid-77889/
https://www.hihonor.com/my/club/topicdetail/topicid-77884/
https://www.hihonor.com/my/club/topicdetail/topicid-77886/
https://www.hihonor.com/my/club/topicdetail/topicid-77888/
https://www.hihonor.com/my/club/topicdetail/topicid-77890/
https://www.hihonor.com/my/club/topicdetail/topicid-77891/
https://www.hihonor.com/my/club/topicdetail/topicid-77892/
https://www.hihonor.com/my/club/topicdetail/topicid-77893/
https://www.hihonor.com/my/club/topicdetail/topicid-77894/
https://www.hihonor.com/my/club/topicdetail/topicid-77896/
https://www.hihonor.com/my/club/topicdetail/topicid-77897/
https://www.hihonor.com/my/club/topicdetail/topicid-77898/
https://www.hihonor.com/my/club/topicdetail/topicid-77899/
https://www.tickettailor.com/events/brahmastrapartoneshiva/758327
https://c.realme.com/id/post-details/1565752360222150656
https://c.realme.com/id/post-details/1565753412547858432
https://c.realme.com/id/post-details/1565754108173176832
https://c.realme.com/id/post-details/1565758201167974400
https://c.realme.com/id/post-details/1565758745295032320
https://c.realme.com/id/post-details/1565759064678699008
https://c.realme.com/id/post-details/1565759948376592384
https://c.realme.com/id/post-details/1565760378359861248
https://c.realme.com/id/post-details/1565760699014418432
https://c.realme.com/id/post-details/1565761626505039872
https://c.realme.com/id/post-details/1565762000364326912
https://c.realme.com/id/post-details/1565762282393538560
https://c.realme.com/id/post-details/1565762584857382912
https://c.realme.com/id/post-details/1565763392646778880
https://c.realme.com/id/post-details/1565763713993363456
https://c.realme.com/id/post-details/1565763957992804352
https://c.realme.com/id/post-details/1565764180202852352
https://c.realme.com/id/post-details/1565764394024275968
https://c.realme.com/id/post-details/1565766428190396416
https://c.realme.com/id/post-details/1565766658768064512
https://c.realme.com/id/post-details/1565766838636613632
https://c.realme.com/id/post-details/1565767054064455680
https://c.realme.com/id/post-details/1565767252102713344
https://c.realme.com/id/post-details/1565767480608395264
https://c.realme.com/id/post-details/1565815439450542080
https://c.realme.com/id/post-details/1565815690362179584
https://c.realme.com/id/post-details/1565815939659042816
https://c.realme.com/id/post-details/1565816167925649408
https://c.realme.com/id/post-details/1565816406002733056
https://c.realme.com/id/post-details/1565817677526945792
https://c.realme.com/id/post-details/1565817967764410368
https://c.realme.com/id/post-details/1565818177051791360
https://c.realme.com/id/post-details/1565818472020414464
https://c.realme.com/id/post-details/1565818732956454912
https://c.realme.com/id/post-details/1565818978960756736
https://c.realme.com/id/post-details/1565820216813113344
https://c.realme.com/id/post-details/1565820405560987648
https://c.realme.com/id/post-details/1565820655566671872
https://c.realme.com/id/post-details/1565820851205804032
https://c.realme.com/id/post-details/1565821063089442816
https://zenodo.org/record/7044164#.YxIRW31BzIU
https://zenodo.org/record/7044176#.YxISJn1BzIU
https://zenodo.org/record/7044178#.YxISnn1BzIU
https://zenodo.org/record/7044187#.YxITRX1BzIU
https://zenodo.org/record/7044197#.YxIZdH1BzIU
https://zenodo.org/record/7044272#.YxIaHH1BzIU
https://zenodo.org/record/7044283#.YxIbL31BzIU
https://zenodo.org/record/7044291#.YxIbp31BzIU
https://zenodo.org/record/7044304#.YxIcRH1BzIU
https://zenodo.org/record/7044312#.YxIcwX1BzIU
https://zenodo.org/record/7044343#.YxIgPH1BzIU
https://zenodo.org/record/7044356#.YxIg8n1BzIU
https://zenodo.org/record/7044368#.YxIhhX1BzIU
https://zenodo.org/record/7044379#.YxIi_n1BzIU
https://zenodo.org/record/7044391#.YxIjeX1BzIU
https://zenodo.org/record/7044508#.YxIuGn1BzIU
https://zenodo.org/record/7044525#.YxIvJH1BzIU
https://zenodo.org/record/7044539#.YxIvsn1BzIU
https://zenodo.org/record/7044547#.YxIwQX1BzIU
https://zenodo.org/record/7044557#.YxIwx31BzIU
https://zenodo.org/record/7044571#.YxIxZX1BzIU
https://zenodo.org/record/7044576#.YxIx-n1BzIU
https://zenodo.org/record/7044581#.YxIyjn1BzIU
https://zenodo.org/record/7044589#.YxIzOn1BzIU
https://zenodo.org/record/7044592#.YxIz3H1BzIU
https://zenodo.org/record/7044601#.YxI0aH1BzIU
https://zenodo.org/record/7044604#.YxI1CX1BzIU
https://zenodo.org/record/7044612#.YxI1oH1BzIU
What are the benefits of a market-neutral pair trading strategy?
The primary reason why prop traders, hedge funds, and other market participants allocate capital towards pair trading is that it’s a market-neutral trading strategy.
Even if the market suddenly collapses, a pair trade could make money, provided the asset that was bought outperforms the asset that was sold.
Moreover, pair trading allows traders to generate a profit in any trading environment. Regardless of whether the market is rallying, correcting, or moving sideways, as long as the asset bought outperforms the asset sold, the pair trade will make money when it’s closed out.
Finally, pair trading is considered a rather low-risk strategy, which makes it interesting for crypto market participants who are concerned about the high cryptoasset market volatility.
Since sharp market movements don’t really affect the profitability of pair trades, they can be an excellent approach to trading the crypto markets.
How to make money pair trading during a crypto bear market
Crypto pair trading might be a good strategy for active crypto traders during a bear market.
Provided you have the knowledge and experience of having both a long and short position open at the same time, pair trading actually has relatively low barriers to entry. All you need is an account with a crypto exchange that allows you to short crypto and offers a wide range of tradable assets.
Next, you need to choose the two cryptoassets you would like to trade and conduct research on which one you will believe will outperform the other. Also, make sure they have a relatively high correlation, which they normally would if they are comparable assets (such as layer-1 (base protocol tokens, e.g., ETH) tokens, DeFi tokens, or metaverse tokens).
Next, you need to buy the cryptoasset you believe will outperform and short-sell the cryptoasset you believe will underperform.
For example, you could go long ETH and short avalanche (AVAX), if you believe that ETH will drop less in value than AVAX during the crypto bear market. If you had put that trade on when both assets hit their recent all-time highs in mid-November 2021, for example, it would have been in the money as ETH has dropped less in value than AVAX since then.
Pro tip: Keep an eye on fees
When deploying a crypto pair trading strategy, keep an eye on fees. Fees that could affect the profitability of your trade can include trading fees, withdrawal fees, blockchain fees, and borrowing fees on your short position.
So even if you make the right call and the asset you bought outperforms the asset you sold, fees will put a dent in your trading profit. So make sure you are aware of the fees you will be paying to open and close your pair trade on your chosen trading platform(s).