DEX Masterclass 104: Essential trading tools arbitrage, longing & shorting, and moving averages
In this episode of DEX Masterclass, it’s time to put some essential tools in your trading toolbox. For example, there are profits to be made in the same markets between different exchanges or by shorting stablecoins pegged to exotic currencies like stable.PHP. And because crypto trading markets are open 24/7, you’ll be given a few more tips to make sure you never miss a trading opportunity.
What you’ll learn
- Longing & Shorting
- Moving averages
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Trading Strategies - Arbitrage
The concept of arbitrage is where you buy a coin at one price and then sell it another price for a profit.
There are many different markets in the world and they do not all behave the same way at the same time. This gives you the opportunity to buy low somewhere, and then sell high somewhere else. The benefit here is that you can estimate profits based on calculations, not speculations.
For example, there could be a profitable difference for bid/ask prices for the BTS/BTC markets on Sparkdex and Binance. The opportunity here is to buy BTS on one exchange at the lower price, and sell BTS on the other exchange at a higher price immediately after.
Pro tip: Even though HKD is pegged to USD, there can be arbitrage opportunities between the two currencies in the BTC market.
Trading Strategies - Longing & Shorting
Longing: If you buy something, and you expect the price to go up
Shorting: If you sell something, and you expect the price to go down
When you lock up collateral to issue stablecoins, you are going long on that collateral cryptocurrency.
In the case of BitUSD created by locking up BTS, when you issue more BitUSD you are going long on the BTS token. If the value of BTS were to drop, your collateral backing the BitUSD won’t be enough to maintain the peg.
Example: Shorting the PHP stablecoin
Looking at the USD/PHP market over the past 40 years, it’s reasonable to assume that the Philippine peso will continue to be worth less in USD over time.
On Sparkdex, stable.PHP uses BitUSD as collateral backing. If you lock up BitUSD to issue stable.PHP, that initial collateral will be worth more PHP as the market continues down the same trend. Your initial USD collateral will grow in value on the PHP market, while at the same time you have minted new PHP which you can use for other things - or even trade for even more BitUSD.
By doing this, you have effectively shorted PHP using USD, something which is not practically impossible through traditional forex brokerage accounts.
Exponential Moving Average (EMA) - Trading strategy
The Exponential Moving Average is an indicator that shows the average price over a specific time period, with more weight allocated to the most recent prices.
There are different ways to use the EMA indicator, which you can search for from the Indicator dropdown menu. Here we’ll take a closer look at the EMA cross, with one line for the last 9 periods and one line for the last 26 periods. The strategy with this indicator is to buy when these lines cross and sell when they cross again - something that typically works out 75% of the time.
However, because crypto markets are open 24/7 you could miss one of these trading opportunities. Therefore, setting up an EMA bot will help you to apply this trading strategy at all hours of the day.