The “Cash and carry” strategy in a nutshell.

By Cyano | Crypto-Tipss | 3 Apr 2021


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"Cash and carry" is an operational method that allows us to buy a crypto and hodl it avoiding exposure to its volatility.

At the same time it can guarantee us a good profit independently from the trend of the market, exploiting the difference between the spot price of a crypto and the price of its relative Future contract.

This difference is known as "Spread" and its value will tend to zero as we approach the expiry date of the Future contract.

In this image you have BTC/USD (orange line) superimposed on the BTC Future contract exp March 2021(blue line).

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The method itself consists of two simultaneous trades:

Buying an amount of Bitcoin on the BTC/USD spot market (orange) which we will consider as a kind of long position, while at the same time we will invest the same amount in a short position on the BTC Futures contract (blue).

In this scenario we are completely neutral to the market price, if bitcoin will dump we will be safe because we are gaining from the short position, and if it will pump we will gain from the value of the amount we hodl.

Additionally if we opened our positions in a good spread condition we will gain from the spread itself when the futures contract expires.

In the second scenario (bitcoin pump) we can decide between two different solutions.

- Use some of our liquidity as collateral to keep the short position open until the Futures exp. date. SAFE WAY.

- Close the short position to increase the profit but exposing ourselves to a higher risk in case of a trend reversal.

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As we can see in the second picture when the market is in a bullish moment the spread increases, giving us a good opportunity to start opening our positions.

We are looking for moments of higher and positive spread because as mentioned above our profit is strictly related to it.

A good tip is to open a short position using leverage to avoid spending the same amount of money we hodl, but remembering to be careful not to be liquidated, maybe using the amount we hodl as collateral can make it easier.

 

 

 


This is not a financial advise.

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Cyano
Cyano

Language, Culture and Literature italian student. Art lover. Interested in Crypto, NFTs and Financial Markets in general.


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