Trading Tutorial 2: Having your cake and trading it too
How to encash your coin holdings but still retain potential coin profits from a bullish upswing
All projects are subject to working capital needs whether coin prices go up or down. In these depressed markets, some fortunate projects would have sold their BTC or ETH early on for their runway of cash needs while less lucky projects are caught in a dilemma; either wait for a recovery in prices to sell or bite the bullet and liquidate at low prices.
Biting the bullet can be frustrating. If prices bounce after selling, the project would have lost potential profits on the coin; precious capital which could be important for marketing or development. (Note that mid Sep 2017 was the start of the epic rally into Jan 2018)
To avoid such frustration, projects may use two key methods to keep the exposure to potential upside of their coin holdings while still being able to sell their coin for cash to meet working capital needs.
1. Long futures pairing
When selling coin for cash, you can simultaneously initiate a long position in the futures (at a similar price to your spot sale or sometimes even better if the contract is in backwardation). This way, you receive cash but your net position is unchanged. You have sold physical coin for cash but you have an equivalent long position through the futures.
If prices then rise rapidly, you would profit from the higher price through the long futures position. Profit which you would have missed out on if you had sold your coin without a futures pairing. Conversely, you will risk losses when prices fall as you would effectively still own the same amount of coin.
2. Buy a call option
An alternative method is to buy a call option against your coin sale. This way, you would profit from a price rise and you would not incur further losses if prices fall (a key advantage over the futures method).
However, there are two downsides to this strategy. Firstly, there is a cost to purchasing an option. Secondly, options are subject to expiry so the profit potential is temporary.
Both methods are executable through our trading desk. Please feel free to ping us for details on process and requirements.
This is part 2 of QCP’s Trading Tutorial series, check out part 1 here.
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