Crypto Pair Trading: How to Make Money with a Crypto Trading Strategy that Doesn’t Depend on the Market

How crypto pair trading works and how to profit in a bear market utilizing market-neutral trading

Crypto Pair trading is frequently accompanied by significant risks and potentially high returns.

However, cryptocurrency traders can also use lower-risk trading techniques.

A crypto trading pair is what?

A pair of two crypto assets that can be exchanged for one another is known as a crypto asset trading pair. One asset’s worth is evaluated in relation to the other asset with which it is paired.

One of the most well-known cryptocurrency trading pairs is BTC/ETH, which allows traders to exchange bitcoin for Ethereum.

How do pair trades operate?

Crypto Pair trading is a market-neutral trading technique that enables investors to make wagers on one asset vs another without being influenced by the direction of the market as a whole.

Traders can make a trading profit if the crypto asset they went long outperforms the crypto assets they went short by opening a long position and a short position on two related crypto assets with a high correlation.

For instance, if a trader thinks that bitcoin SV (BSV) would keep declining in value relative to bitcoin (BTC), they might open a BTC long and BSV short position with the same amount of risk on each.

In this case, the pair trade will be “in the money” if BSV decreases in value by more than BTC by the time the trader closes out both positions.

What advantages do market-neutral pair trading strategies offer?

Prop traders, hedge funds, and other market participants invest money in pair trading primarily because it is a trading method that is market-neutral.

If the asset that was acquired outperforms the asset that was sold, a pair trade could still be profitable even if the market abruptly falls.

Crypto Pair trading also enables traders to make money in any trading situation. The Crypto pair trade will be profitable when it is closed out whether the market is surging, correcting, or moving sideways as long as the asset bought outperforms the one sold.

Finally, Crypto pair trading is seen as a relatively low-risk approach, which makes it appealing to participants in the cryptocurrency market who are worried about the significant volatility of the market for crypto assets.

Sharp market movements don’t really have an impact on pair trade profitability, thus they can be a great way to trade the cryptocurrency markets.

How to profit from pair trading in a bear market

For aggressive cryptocurrency traders during a bear market, crypto pair trading may be a viable approach.

Crypto Pair trading actually offers rather minimal entry hurdles, so long as you have the expertise and experience to hold both a long and short position open at the same time.

All you need is a trading account with a cryptocurrency exchange that permits shorting cryptocurrency and has a large selection of tradable assets.

The next step is to decide which of the two crypto assets you want to trade and then do some research to determine which one you think will perform better than the other.

Additionally, ensure that they have a high degree of correlation, which they should if the assets are similar (for example, layer-1 (base protocol tokens, such as ETH) tokens, DeFi tokens, or metaverse tokens).

The next step is to short-sell the crypto asset you think will underperform and buy the one you think will outperform.

For instance, if you think that ETH would lose more value than AVAX during the crypto bad market, you might go long ETH and short avalanche (AVAX).

For instance, if you had entered that trade when both assets reached their most recent all-time highs in mid-November 2021, it would have been profitable because ETH has depreciated less than AVAX since then.

Watch fees!

When you use a strategy for trading crypto pairs, keep an eye on the fees.

Fees like trading fees, withdrawal fees, blockchain fees, and borrowing fees on your short position can change how profitable your trade is.

So even if you make the right choice and the asset you bought does better than the asset you sold, fees will cut into your trading profit.

So, make sure you know how much it will cost to open and close your pair trade on the platform you choose (s).