Strategy Example(Future and Spot)
With Future and Spot Protocol
Comment
Basis trading strategies
CommentVanna enables traders to execute basis trading strategies by utilizing both the futures market and the spot market. Here is an example of a basis trading strategy involving ETH in the perpetual market. Let's say the current price of Ethereum (ETH) is $3000. The trader, let's call them Alex, decides to execute basis trading strategyComment
1.Alex opens a short position:
Alex sells 1 ETH futures contract at the current price of $3000 per ETH.Comment
Comment
2.Hedging the short position using the spot market:
To hedge the risk of the short position, Alex simultaneously purchases 1 ETH in the spot market.Comment
Alex buys 1 ETH at the current spot price of $3000.Comment
Comment
Now, as the market sentiment generally favors long positions, long traders typically pay short traders through the funding rate in perpetual markets. This means that, over time, Alex stands to benefit from this discrepancy.CommentBy maintaining the short position in the futures market while hedging with a spot market purchase, Alex strategically positions themselves to capitalize on the funding rate differential. Over time, as long positions pay short positions via the funding rate, Alex aims to achieve a significant annual return on their investment by exploiting this market dynamic
Last updated