Cryptocurrency advocate and analyst, growth hacker
But that environment is an exception and not the rule. Skilled traders and professionals know that those kinds of stories and circumstances rely mostly on luck and hype and not on the knowledge and expertise. Yet still trading cryptos can be extremely profitable as the volatility is what drives this industry. But for people who have been used to trading traditional assets and are accustomed to certain standards trading cryptos still pose certain challenges and limitations to be considered a serious operation and not just a test of luck.
In this article we are going to cover 3 of the biggest ones and how far has the industry come to solving them.
Unfortunately, there haven’t been many ways to do so. Sure you can engage in trading leveraged derivatives on Bitmex or even margin spot trading on traditional exchanges like Bitfinex or most recently Binance, but there are also a number of problems associated with this kind of approach.
The trading pairs are usually limited to Bitcoin, Ethereum, Litecoin, and a couple of the major ones so you can’t short the altcoin you know that going to 0 as developers have quit the project.
Second, those major coins are only paired against USDT which actually isn’t all that stable and whose value fluctuates but most importantly your gains fluctuate depending on the directional movement.
For example, if you short Bitcoin and the price depreciates you win a BTC gain but your overall holdings are still diminished as the value decreases. Or if the price increased and you went long yes your gain will be higher but your BTC denominated rollover fees would be higher as well.
Also setting your stop loss or take profit levels can be a bit sloppy as maybe there aren’t any buyers and sellers at your preferred price. This brings us to the next problem
2. Limited Trading Pairs
We are relying on exchanges to introduce a trading pair and other buyers and sellers to provide liquidity in the order book. What if there isn’t a trading pair you would like to trade but know that it provides a good opportunity? Or you have an altcoin but you want to buy another some you have to spend double the fee to convert it back to BTC so that you can buy your desired altcoin. Or even worse you have to switch to another exchange that has your desired altcoin so you would have to pay the withdrawal fee as well as the deposit fee as well as the maker fee.
This ties into the liquidity issue: if there aren’t any market makers there isn’t a market e.i a trading pair.
These developers have thought of a way to apply the disruptive blockchain principle relying on math to solve complex issues. This is why their quantum trading core technology holds not only the promise of revolutionising the way people interact with exchanges but changing a century-old paradigm.
With the invention of blockchain technology in combination with the rise of algorithms and AI there isn’t any more need to rely on traditional matchmaking mechanisms, as the tech offers a promise to disrupt the middleman. This innovation can easily be translatable back to the traditional markets and we might see it being implemented and used for potentially other things then trading pairs but everywhere where the matchmaking is involved – real estate, workforce marketplaces etc.
3. Thin Market’s – Experiencing Slippage
Trading major cryptos you might not experience much slippage but depending on the market conditions, the exchange you are using your purchasing/selling power or how in a hurry you are even that can pose sometimes a challenge.
Trading altcoins is far worse. Usually, the smaller the cap the higher the slippage. You can, of course, enter a limit order and wait but it might not get filled, and especially if you are in a hurry to use a trade opportunity it can be a huge problem and the coin might just start getting away from you at price, so you lose your entry.
Low liquidity issues have been attempted to be solved by partnerships, inventive programs or even in the case of Kyber Network eliminating the order book completely but ultimately there still hasn’t been a good and reliable solution to this problem.
These two problems just add up to the sloppy experience and professional traders know that every miscalculation in percentage can shift his risk/reward ratio into an unfavorable one in the long term. This brings us to our third key problem that some of the novices don’t even take into consideration.
Certainly, there are major advancements in the solutions to the problems we have outlined for a professional approach to the cryptocurrency trading, but it appears that the demand for more stable and precise products has to arise for the key market players to start developing and implementing solutions that endorse a more mature approach to this activity. It has come a long way from it’s starting year’s that’s for sure so there’s no doubt in my mind that it is going to improve but outlining these problems and pointing them out is the first step towards creating the investors and traders demand for more reliable features and products.
Disclosure: I don’t have any vested interests in any mentioned projects