How to earn stable income with crypto part 5: Cash and Carry

Cash and Carry arbitrage are simply a market-neutral skill that is aimed to profit from price differences in one or more market situations. It involves buying an asset in the spot market against a short position in the futures market, especially when the futures draw a substantial premium relative to the spot price. In that way, traders pocket a fixed return as the premium decays as time goes on and converges with the spot price on the expiry date.

Secondary Market explained

In essence, the secondary market can be explained as trading of future contracts that represent the value of a specific cryptocurrency. It’s also worth noting that when you buy a future contract of a cryptocurrency, you don’t truly own the said cryptocurrency but the specific contract with a promise to either buy or sell the given cryptocurrency in future.

Key Notes 

  • The secondary market is also called ‘Future market’ or synthetic market
  • No real assets (or cryptocurrencies) are being traded on the secondary market but contracts that refer to a real asset. 
  • It allows traders to bet on a market without having the asset. 
  • The secondary market enables a lot more liquidity than the primary market but also leverages possibilities. 

The unprecedented growth witnessed by the cryptocurrency world in recent years has resulted in the introduction of new and more advanced trading products such as futures and options. 

Futures trading represents an essential chunk of conventional derivatives markets and is also the most traded cryptocurrency derivative. 

We have top cryptocurrency exchange platforms that support trading futures and options for ETH, BTC, and all other digital assets, alongside providing the necessary data, resources, and tutorials, such as all forms of futures trading charts. 

Since the Secondary market needs an understanding of derivatives, you are encouraged to learn about trading futures and options and admit the risks involved before entering the market properly. 

Secondary market with computational trust—How effective is it?  

One way to see computational trust providing much value is the removal of third parties in the trading process. This disintermediation will see blockchain technology making markets pretty efficient by speeding up transaction steps and erasing parties who no longer provide value. This is a true disruption to an established market. 

With the secondary markets over blockchain addition in most trading platforms, there’s been an introduction to engines for minting tokens representing a specified investment. And in the case of an equity investment represented by shares, the investor is issued many tokens as they buy shares when the shares are evenly distributed. 

This gives investors several benefits; one that is highly notable is several blockchain tokens equal to their number of shares in a company, which allows them to deal confidently with secondary marketplaces. 

Cash and Carry Trade Explained 

The trade occurs on the futures market, which means there is no funding fee. But instead, there is an expiration date. When the expiration occurs, all positions (Long and Shorts) are duly settled. 

The longer the expiration is, the bigger the price difference the primary market will be. If traders are bullish, the price will be higher; if they are bearish, it will be lower. 

For example; 

Market: Bitcoin December 2021 Futures on FTX— which means the market will expire on 12/31/2021. In such a time, this market is trading at $41,145, and the primary market for BTCUSD is at $39,158, so there is a 5 percent difference. 

The strategy will be then; 

  • – Buy $10,000 worth of BTC on the primary market
  • – At the same time, sell $10,000 contract on Bitcoin December 2021 
  • – When the expiration occurs, close both positions with a net $500 income 

Best places to do the Perpetual Funding Trading 

FTX

FTX lists futures on many coins, which include BTC, EOS, USDT, and XRP. Each coin is said to have three futures; a contract that expires this quarter, a perpetual future, and a contract that expires next quarter. 

FTX logo
  • Credit card/Debit card
  • Up to 101x leverage
  • Move contracts
 

Now, what makes FTX’s future different from other futures? 

The futures listed on FTX differ from the other major cryptocurrency futures in the following ways; 

  1. – FTX futures have careful, measured margin calls that avoid large dislocations. 
  2. – FTX futures are known to have a unique backstop liquidity provider program that jumps in to offer to accounts in danger of bankruptcy, supporting and avoiding all forms of clawbacks. 
  3. – FTX futures are stable coin settled; all you have to do is deposit stable coins as collateral for all of the futures, and your PnL is duly settled in stable coins. This means that you can get legitimate USD-based price exposure and settlement, all done without needing any bank account. 

You can also use the same base currency as collateral for all the contracts, making it easy to shift your positions around. 

Besides FTX, users can also try perpetual funding trading via these exchanges:

Best for Altcoins
Binance logo
  • Credit Card
  • Cryptocurrency
  • Bank transfer (sepa)
 
10% Fee Discount
BitMex logo
  • Cryptocurrency
  • Up to 100x leverage
 

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Written by:  Narender Charan

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