Basket trading – trading in a basket of assets is one of the favorite and most profitable ways to trade in any financial market, including the cryptocurrency market.
By choosing several promising assets included in one common position for trading both within the day and for long-term positions, you get a number of advantages that single trading does not have.
ADVANTAGES OF BASKET TRADING
All assets, even if they are of the same type, always differ in terms of profitability. At the same time, an asset that showed an increase of 20% yesterday can bring a yield of no more than 5% the next day. Whereas an adjacent asset that grew by 0.5% in the previous period can increase its growth to 10%.
And when your investments are distributed among assets from one basket, you can always count on an average return on the overall dynamics of the selected market sector.
In addition to the fact that Basket trading is able to improve trading results in the right direction, it also reduces risks by averaging losses.
If you look at the overall picture of the cryptocurrency market, you will certainly notice that even during the strongest dump, there are always several coins, the price of which shows growth.
And to know in advance about which cryptocurrency will grow in conditions of general decline, the task is quite difficult and difficult to implement.
Whereas in the context of including a number of cryptocurrencies in the sectoral basket, you are more likely to be able to fix the profit from such growth, thereby reducing the risks during the general drawdown.
DIFFERENCES FROM PORTFOLIO INVESTMENTS
In essence, Basket trading is in a sense similar to portfolio investment, as it is a process of simultaneously placing funds in several investment assets. But that’s only at first glance.
Basket trading has one significant difference from portfolio investment. When an investor or trader draws up an investment portfolio, it includes assets based on the prospects of profitability, degree of risk, correlation, and from different sectors of the market.
For example, the investment portfolio may include cryptocurrencies belonging to the SHA256 Bitcoin token type, the ERC20 Ethereum smart contract standard, as well as Waves, Nem altcoins and interblock cryptocurrencies such as Qtum.
When forming Basket trading, only the same type of assets belonging to the same market sector are included. For example, only cryptocurrencies created to service ERC20 smart contracts related to Ethereum digital currency.
Thus, by creating a sectoral basket, you increase the chances of getting the maximum benefit from investing in one, certain, market sector. But at the same time, you do not limit yourself to the possibilities of only one cryptocurrency, thereby increasing the potential for profit.
PORTFOLIO FROM SECTORAL BASKETS
As you can see, portfolio investment and Basket trading are still different. But at the same time, they can be used together as a single whole trading system.
Professional traders, as a rule, rarely trade exclusively in one market, trying to distribute their capital between the stock, commodity, currency and cryptocurrency markets.
And the use of sectoral baskets that divide investments into market subcategories allows them to create complex but well-diversified investment portfolios based on the advantages of Basket trading.