What is a market neutral strategy?

Haru Invest uses a market-neutral strategy with price-stabilizing mechanisms when trading in the crypto futures market. More specifically, we aim to generate steady earnings by hedging against risks in the futures and spot markets and by utilizing the inefficiencies of two systems in the crypto futures market (which are nonexistent in the traditional finance industry): the perpetual futures market and funding fees.

Why_Haru_Invest_4.png

  • Perpetual Futures: Futures contracts in the traditional financial sector are divided into 1 month, 3 months, 6 months, and 12 months, as futures are about predicting the value at a particular time in the future. All of these futures contracts however, were consolidated into a single type called “perpetual futures” to maximize the number of possible contracts.
  • Funding Fees: Bitmex’s funding fee is structured to pay short position holders at least 0.01% of the long position volume every 8 hours. Since the futures market is led by crypto holders, there are far more cases in which a long position holder pays a funding fee to a short position holder.

Some correctly predict that the value will rise after 1 month, 3 months, 6 months, or 12 months, but whether they believe the value will go up or down within the next 8 hours is a different story. The introduction of the funding fee system ultimately allows those who take a short position to earn returns as long as the price falls at the 8-hour mark when the funding fee is paid. And even if the price stays the same, they’re still able to generate profit from the funding fee.

In addition to taking advantage of these two systems within the crypto futures market, our platform is able to generate earnings for members by using a strategy that hedges the spot market through futures contract mechanisms, as seen below.

  • First, we take a short position in the crypto futures market.
  • Then, we hedge the same amount on the crypto spot market.
  • In this scenario, if the price falls, we earn from the short position, but incur a loss in the spot market. If the price goes up, a loss is incurred due to the short position but we also make a profit in the spot market.
  • By maintaining a zero-sum between these two positions, we generate profit from funding fee.

In other words, this strategy uses the perpetual futures funding fee to generate profit by hedging the risks of future contracts in the spot market.

Since launching in 2019, the Haru Invest asset management team has believed in the potential of crypto as an asset that can be managed by experts to generate returns. We’ve been continuously developing our  market neutral strategies by increasing our crypto volume regardless of price volatility and we will continue to deliver strong returns for our members, regardless of market conditions.

*** A closer look at two systems in the futures market: perpetual futures and funding fees**

Crypto is not only traded in the spot market but also in the futures market (derivative market).

Futures market trading seeks to take advantage of price stability mechanisms of futures exchanges by buying or selling at a set future date for a set price and essentially setting a purchase price at a certain point in the future and purchasing when the crypto price on an exchange hits that price.

The futures market did not grow significantly until 2018, right around when Haru Invest was first ideated. Since crypto holders generally believe crypto prices will rise, most are inclined to take a long position as opposed to a short position, which hinders the growth of the market. To address this imbalance, the two mentioned systems were introduced only in the crypto futures market, allowing for its rapid growth.

Starting with Bitmex, several crypto futures exchanges grew exponentially and today, there are over 10 major crypto futures exchanges including Binance Futures, OKX, Bybit, etc.

Was this article helpful?
1 out of 1 found this helpful