825
views

Getting Familiar with Quantitative Trading in Crypto: A Beginners’ Guide

There is a good reason for the growing hype about quantitative trading in crypto, mainly because it efficiently combines past market data with accurate mathematical algorithms.

By analyzing historical data of a market, quantitative investors can shape formulas that have proven to predict future crypto market movement accurately.

There is a great amount of success in quantitative trading, as it relies on the thorough development of specific formulas. And by applying these formulas to automated algorithms, it carefully avoids the psychological defects of being human.

Why Use Quantitative Crypto Trading?

Quant – or quantitative – analysis is a relatively new trading strategy, frequently deployed by hedge funds, large investment firms, and sophisticated investors. It relies heavily on mathematics.

There are several advantages that computer algorithms have over human traders. The first and most obvious of them is that they can run perpetually. Even after human traders have called it a day, these computer algorithms can keep running round the clock as long as the cryptocurrency markets are open.

Secondly, these trading algorithms can place trade orders with speed by using bots. These bots are typically run on high-performance computer servers capable of opening and closing trades faster than any human.

However, an algorithm’s most important benefit is that it has no emotion as it is run entirely by code. This enables them to consistently and objectively process the numbers and execute the trade irrespective of how you may feel.

Indeed, feelings of fear and greed are often some of the direct causes of large trading losses. A trader will divert from a tried and tested strategy merely because of how they feel.

How Quant Trading Works

If you have a strategy that relies purely on crypto-asset price relations, it is possible to develop an algorithm. Indeed, numerous strategies can be employed with quantitative trading.

Market algorithms are coded in well-known programming languages, including Python, Nodejs, and C++, and then run on dedicated servers that connect to an exchange API. Once connected, the algorithm uses price feeds as the inputs to the model, which it uses to quantify the data and create orders as outputs.

In the crypto markets, we presently have all the essential ingredients to create and operate quantitative trading algorithms. Essentially, users can access strong liquidity across the top ten market cap digital assets along with open access from a variety of cryptocurrency exchanges with robust API systems.

As the markets are becoming more saturated and more competitive, they could be followed by a range of high-frequency trading firms and quantitative Hedge funds.

Genesis Trading Acquires Quant Investment Firm Qu Capita

Cryptocurrency trading can be risky, but a new acquisition could make it more predictable and competitive.

Genesis, a crypto trading and lending startup, is now providing the quantitative trading proficiencies of Qu Capital to its users. In September of last year, Genesis announced that it had acquired the New York-based investment company specializing in quantitative crypto trading.

Genesis CEO Michael Moro remarked that his company decided to acquire Qu Capital to integrate its in-house team and expand its trading and lending dealings. Qu Capital was created in 2017 and has since endeavored to develop crypto trading tech, which comprises exchange connectivity, order steering, and trade execution tools.

After its crypto-related lending business saw $746M in loans in the 2nd quarter of 2019, Genesis embarked on this remarkable acquisition agreement, growing its total originations to $2.3B since its launch in 2018.

The company provides big individual traders and institutional players with easy over-the-counter (OTC) cryptocurrency trading and leading services.

Trend Following in Quant Trading

Trend following in quantitative trading is based on the notion that markets have momentum, and you want to be on top of that momentum. One of the most recognized technical indicators is trends, and many such indicators can be deployed to map emerging trends.

Some of the most used indicators in crypto trading are Moving Average (MA) Cross Overs. These usually occur when a “faster” and shorter-term MA indicator crosses over the longer-term or “slow” indicator.

In the graph depicted below, we have an example of a conventional 50-day MA crossover of the 200-day MA indicator. In this case, the crossover is an indicator of a bearish trend, and BTC should be shorted.

how quant trading work

The opposite will occur if the fast indicator crosses over the slow indicator from the bottom. In this case, you should go long BTC. Usually, this is one of the simplest indicators, and traders will usually combine it with a range of others.

You could develop a simple trading algorithm that will execute the trade for you with the functionality to place stop losses and halt limit orders when the execution order is given.

Pairs Trading

The notion of pairs trading is that if two assets have been trading near lockstep in the past. If there is a reversion away in that historical relationship, it indicates that the two assets are expected to revert. You will then sell the asset that is “overpriced” and buy the underpriced one.

In cryptocurrency trading, the two digital coins will have a high correlation with general crypto market movements, which means that you are quite hedged against adverse market moves.

In the graph below, you can observe the ratio of the value of ZCash (ZEC) to that of Monero (XMR), along with an elaborate model of the Bollinger Bands of these sequences.

how to use quantative trading

There were two instances where the ratio was beyond the two standard deviations, indicating that it could ultimately revert. You will short ZEC and buy XMR, hoping that the latter will surge in price, and the former will decline.

You can also observe the Bollinger Bands and use that to indicate that the spread between the two coins’ prices has increased/declined further than historically justifiable numbers.

Arbitrage Trades

With arbitrage trading, you are trying to take advantage of market mispricing and earn a risk-free profit. To take advantage of these opportunities, you need to act quickly, as they only last for a few seconds before the market recognizes that there is mispricing and closes the gap.

In the cryptocurrency markets, the arbitrage trades usually the most profitable trade the differences in price between digital tokens on numerous exchanges.

This will require the bot developer to account for both exchanges and link the algorithm’s orders to their API systems.

Some bots can take advantage of mispricing on an exchange itself. For example, there is a bot called “Agent Smith,” which made quite a bit of money during the bull market as it traded mispricings on the Poloniex exchange.

Should You Consider Quant Trading?

Here are some considerations for traders wishing to apply quantitative trading:

  1. There are still going to be standard trading risks involved.
  2. Past performance is not an indication of future performance, and traders need to monitor the process and make adjustments frequently.
  3. You should be a sophisticated trader with solid experience so that you can effectively evaluate a particular strategy and know if it suits you.
  4. You shouldn’t trade more money than you can lose.
  5. Fees can quickly kill profits, particularly if quant trading bots executes orders too regularly.

Conclusion

Quantitative trading in the digital asset markets is becoming more competitive, but there are still opportunities available, especially with technical indicators and reversion strategies.

If you have a strategy that works, there’s a good possibility that it can be coded into a mathematical formula to trade automatically. As long as you’re diligent, quant trading can be a brilliant way to approach the crypto markets and make substantial profits.

Bitcoin live price
Btc
Bitcoin
$16.809,8
price
0.09701%
price change
BUY NOW

Preferably, it would help if you considered taking the time to build trust with a quant trading system before adopting it. This could entail observing how the system performs in hypothetical simulations before putting real money in it. You can do this with a paper trading account to guarantee your numbers track well in many cases.

Stay up to date with our latest articles

More posts

3 Ways DeFi Can Recover After Alameda and FTX Bankruptcy Shock

In early November, Alameda Research became insolvent. FTX tried to bail it out but faced a liquidity crisis that shortly led to its bankruptcy and marked the start of a cataclysmic meltdown in the cryptocurrency market. Here’s a brief aftermath of it in numbers: $223 billion was lost in the market cap for the entire crypto market in less than 5 hours. $15 billion was lost in total value locked (TVL) in DeFi protocols. $4,700 drop in value for Bitcoin in a…

SuperBots – A Case for Imminent Decentralization amid Recent CEX Failures

Crypto trading has taken the back seat in the digital economy in 2022, with the market remaining under the bears' control for most of the year. Furthermore, traders have seen their faith rocked by the consecutive failures of centralized exchanges. These intermediary marketplaces have been the powerhouse of the industry since its humble beginnings. Now, they seem to crumble under mounting allegations of scams, lawsuits, and solvency concerns. Meanwhile, they make a convincing case for the imminent decentralization of crypto…

Smart Contract Security – Pitfalls and Solutions

Smart contracts are becoming increasingly prevalent as the world moves towards a more digital and automated future. Still, they are far from being the panacea of all technological ills. Smart contracts are self-executing contracts with a predetermined set of rules. They are stored on the blockchain and run by computers, which makes them tamper-proof and reliable. However, as with any new technology, smart contracts have associated risks. This article will explore some of the most common pitfalls and how to…

Looking for Crypto Marketing? Here are The Best Crypto Advertising Agencies in 2023

It is vital to have a strong marketing strategy if you wish to succeed in cryptocurrency. This is where crypto marketing agencies come in. You may successfully promote your project and reach your target audience through a crypto marketing agency.  This article will explore the top crypto marketing agencies in 2023. Moreover, we will look at their services and how to choose the right one for your project.  We will also discuss the benefits of using a crypto marketing agency.…

The Risks of Investing in Crypto Projects without Smart Contract Audit

Smart contracts are self-executing contracts that run on blockchain technology. They are stored and verified on the blockchain, which means they are transparent and cannot be tampered with. This makes them a secure way to conduct transactions without needing a third party.  Despite their many advantages, some risks exist with using smart contracts. One such risk is investing in crypto projects that have yet to have their smart contracts audited by a qualified auditor.  Without an audit, it cannot be…

SuperBots Trading in DEX – The Future of DeFi Trading is Here

Trading in decentralized finance is evolving rapidly and empowering people worldwide to access new forms of income. Spearheading this revolution are platforms like SuperBots, a BSC-based protocol enabling users to deposit their capital in vaults for secure and efficient trades on decentralized markets. SuperBots accelerates the mainstream adoption of DeFi trading through high-performance bots that automatically trade for their owners. This way, users can achieve profitable trades, regardless of their experience or skill. Furthermore, the platform does not charge any…

Top Smart Contract Audit and KYC Companies in 2023

It's no secret that business is undergoing fast change. Companies must adapt when new technologies, like smart contracts, emerge to remain competitive. A crucial part of this adaptation process is ensuring compliance with regulations and safety. This is where a company's KYC (Know Your Customer) process or smart contract audit come into play.  To ensure that your company is compliant, working with a reputable smart contract auditor or KYC provider is essential. This blog article discusses the benefits of using…

Automated Trading with No Subscription Fees – How UpBots is Revolutionizing the Trading Industry

Cryptocurrency trading has enhanced the universe of assets available to traders worldwide. However, this practice is challenging for inexperienced or unskilled traders. Furthermore, the ongoing bear market makes trading costly and inconvenient when most platforms charge upfront or subscription fees. As a result, many people avoid entering the market. UpBots aims to change that and take the trading industry to a new level through innovative and affordable solutions. For one, its automated trading service allows users to trade in CEX…

Top 5 KYC Solutions for Crypto or NFT Projects

As the importance of blockchain technology grows, many people look for ways to get involved in the crypto world. One of the most important aspects of any cryptocurrency or blockchain project is KYC/AML.  Without proper KYC/AML procedures, your project could be at risk for fraud and illegal activities. This article will discuss the types of KYC solutions available and how to choose the right one for your project.  We will also provide tips on how to implement these solutions properly.…

DeFi Scams – Most Common Scams in the DeFi Space

In the world of Defi, scams are unfortunately all too common. This article looks at popular Defi scams, how they operate, and how to protect yourself. We'll also provide tips on what to do if somebody scammed you and how to report a scammer. Finally, we'll discuss the implications of DeFi scamming and present examples of successful prosecutions. What Are DeFi Scams, and How Do They Work? Decentralized Finance (DeFi) is a term that has gained enormous popularity over the…