Cryptomoney trading is a zero-sum game with clear winners and losers.
This competitive stage produces countless self-proclaimed profitable traders on Twitter and YouTube. As big office players work trading for institutions like Galaxy Digital and Pantera Capital, how do their strategies compare to those of home retail traders? Do retail methods even work?
„In general terms, the larger institutions are mostly directionally agnostic and generally focused on market making,“ Bill Herrmann, CEO of the Wilshire Phoenix investment firm, told Cointelegraph.
By directionally agnostic, Herrmann means that institutions do not trade based primarily on management. Directional trading refers to placing trades on the long or short side, essentially betting the market up or down. In contrast, non-directional trading strategies take advantage of various trading products, bots, and other aspects to make money out of Bitcoin’s upward or downward movements. Retailing often involves a markedly different approach. Such traders are often on their own to learn and find success.
Tokenization-focused trading platform introduces new features
Most traders fail
Cryptomone trading is like conventional stock, futures and currency trading in several ways. Participants use price charts, indicators and fundamental drivers for trading justification, sculpting trading strategies after hours of testing.
„Profitable day traders represent a small proportion of all traders: 1.6% in the average year,“ according to an article by Tradeciety, which quotes data from the book Do Day Traders Rationally Learn about Their Ability. „However, these day traders are very active: they account for 12% of all day trading activity.
That said, trading is very difficult. Unlike sports and other events, when people trade or invest, they enter a circle against the best professionals in the industry. A similar analogy shows the average person walking off the street directly to an NBA game. The result would not end well for that person.
Trading has changed from the crowded city halls portrayed in movies
„With respect to retail traders, I think very few of them are really successful,“ David Carman, a former pit trader at the Chicago Board Options Exchange and co-founder of the FinTank technology center, told Cointelegraph.
„Most floor traders were not able to successfully transition from pits to e-commerce,“ Carman said. „With a few exceptions, they all failed,“ he added. „The benefit of pit trading lay in the brokers. You lose that advantage by trading electronically.
Gone are the days when crowded trading floors housed participants screaming for business. Floor trading needed brokers on the floor, moving in and out of positions available to traders. Knowing the broker well was an advantage for the competition. When trading went digital, that advantage disappeared.