There is no profit without risk. As an investor, you need to optimize the risk/reward ratio. In the Zeta Broker system, we can set the expected profit to the appropriate level by entering the correct trade size. We can also parameterize the software so that it works practically without risk, but in this case the profit will be very small. The other extreme is to open the account too much. In this case we will get a nice profit in a certain period of time, but the associated risk will be high.
Unfortunately, we have to say that there is no one size fits all! We must decide what is best for us. By buying our cryptocurrency, we have already taken the biggest risk.
Determining the trade size
We will demonstrate the operation of our software with examples. Let’s assume that we have an exchange trading account where we have placed 10 ETH coins as a base cryptocurrency. We would like to invest this amount. The grid manager works by converting the base cryptocurrency on the managed account to the corresponding ETHUP token and then converting it back to the original ETH coin according to the market situation. A profit is generated during the exchange. It should be known that the ETHUP token follows the development of the ETH exchange rate with leverage. The applied multiplier is dynamically changed by the exchange according to the market volatility. The degree of leverage ranges from 1.25 to 4. For our example we will use a double (2x) multiplier.
The grid manager does not exchange the available amount of ETH all at once, but in small pieces called trading units. We need to set the size of these units before starting the grid. This parameter must be entered in ETH. A change, i.e. the opening of a new trade, takes place when the price of ETHUP moves down on the market and its exchange rate reaches the next level. The next level is set lower than the previous level by a certain percentage. Thus, as a result of the falling exchange rate, more and more trades are opened, we can also say that we are converting more and more ETH into ETHUP tokens. It can be seen that the higher the value of the trade size is set, the faster the available ETH can be used up during exchanges when the market is in a negative mood. The opening distance percent is set automatically by the system, its current value is displayed on the Dashboard page.
What happens if all the basic cryptocurrencies in the account are used up?
The grid manager will not be able to open another deal, i.e. trading will stop. The account will contain only ETHUP tokens. This situation is problematic for two reasons: 1. we make no money; 2. we have to pay interest to the exchange for holding leveraged tokens. The interest is very small, only 0.01% per day, but it is a continuous loss for the time the trade is stopped.
Number of trading units
The amount of available base cryptocurrency (ETH in our case) divided by the trading volume:
10 ETH / 0.1 ETH = 100 units.
Let the exchange rate of ETH is 1700 USDT, and at the same time the exchange rate of ETHUP is 5 USDT. The grid manager initiates a buy order selling one unit of the base cryptocurrency, i.e. 0.1 ETH, according to the specified trade size.
0.1 * 1700 = 170 USDT for it,
from which we buy
170 / 5 = 34 ETHUP tokens.
The price of ETHUP starts to rise, it reaches the expected profit margin, for the sake of calculation let us say 2%. This parameter is automatically set by the system, its current value can be seen on the Dashboard.
5 + 2% = 5.1 ETHUP/USDT.
At the same time, the price of ETH increases:
1700 + 1% = 1717 ETH/USDT. Due to the 2x leverage, ETHUP rises twice as much.
The grid will exchange the original ETH value and sell the 34 ETHUP tokens previously purchased:
34 * 5.1 = 173.4 USDT for it,
from which we buy back the original amount of ETH:
We pay 0.1 / 1717 = 171.7 USDT for it.
173.4 – 171.7 – exchange commission = about 1.6 USDT profit.
If we calculate all this with a trading size of 0.05 ETH, we will have half the profit, but at the same time the number of usable trading units will double. In this case there would be enough ETH on the account even with a much larger market drop.
And if we count on a trading size of 0.2 ETH, we can use only 50 units of capital with twice the profit.
From the above, it can be seen that the more trading units available, the lower the risk of running out of the base cryptocurrency during the exchange. Unfortunately, the profit that can be made will also be significantly lower. The appropriate setting must be made based on individual judgment.
Here’s what we do at Zeta Broker:
We set the trade size so that we can work with 100 units. If half of our capital has already been converted due to a significant market decline, we will reduce the trade size by half. If prices continue to fall, we will halve the size again, taking care not to hit the exchange limits. For more information on market limits, see the description of the Dashboard page.
When the market turns and prices start to rise, we gradually increase the trade size back to the original value.
Let’s read the news! If an announcement is expected that could significantly move prices in either crypto or other capital markets, we will stop trading until the announcement is made.