Risk reduction is a fundamental skill that every trader must master. While some strategies are inherently more risky than others, you can use interesting trading methods to significantly reduce risk and reduce potential profit. Day traders often prefer to use these approaches. In any case, numerous novices will profit from carrying out a comparative style to figure out how to control misfortunes.
The history of financial markets is full of interesting discoveries, such as spread trading, a technique that focuses on exploiting the price differential between closely related assets. A spread trading platform is a market where you can simultaneously buy and sell related assets while enjoying the benefits of leverage. Since you need to trade and sell various assets, you need to use your margin trading account.
What are trade spreads?
When you sell or buy a single asset, the price volatility can be devastating. Predicting an asset’s movement is difficult, especially in volatile crypto markets. However, you can gain a better understanding of the overall market situation and make decisions based on your forecasts by mitigating risk by offsetting losses on long positions by reducing related assets.
Let’s say you want to popularize Bitcoin trading. In this case, you need to find an associated asset. Ethereum is a great candidate as it trades in a similar market and is influenced by the same macroeconomic factors. You buy BTC and sell ETH at the same time. When BTC goes up and ETH goes down, you make big on the spread between two prices (hence the name spread trading means the difference between the assets at any given time).
At the same time, losses are minimized when BTC falls and ETH rises. There are other outcomes, but in most of them, you will significantly reduce losses or make money. Spreads between related assets tend to be very small and don’t generate large returns, but they are predictable and safer compared to many other types of active investing.
There are two ways to use the strategy
Cross-exchange spreads are orders involving two closely related assets trading in the same time frame. The example of BTC and ETH is a great illustration of this method.
Intramarket spreads are orders that affect only one asset but are traded on different expiry dates. We also call it spread futures trading as it is only possible with futures contracts.
Automate spread trading
One of the best ways to efficiently use this simple strategy is to add automation. Bots are great for this specific task for several reasons:
Bots never sleep, rarely make mistakes, and react immediately to market changes. They are perfect candidates for executing spread betting schemes.
You can use a variety of different settings to set Stop Loss and Take Profit levels. In this case, bots will reliably mitigate losses.
Spread trading relies heavily on consistency. You need a lot of small trades to make significant profits. While you might feel tired after a day of intense performance, bots never miss an opportunity to place an order.
Many exciting automation platforms offer great products for those interested in implementing contemporary technology into their investment efforts. WunderTrading is a great example of a service that integrates with numerous popular crypto exchanges and third-party analytics platforms like TradingView.
Best of all, you can join and utilize the free arrangement to test spread exchanging procedures without paying for mechanization. When your system works well, you can update your plan and start implementing your method on a much larger scale.
Should you try trading with Spread?
This particular technique does not require deep knowledge of financial markets or technical knowledge. It is a good option for beginners who are not familiar with the behavior of some assets or want to trade with leverage without the risks associated with margin trading. Since using spreads is much less dangerous, many exchanges offer leverage on better terms for traders.
