The Significance of Trading Volume: Understanding Its ImportanceHey there, fellow traders! Today, let's dive into the fascinating world of cryptocurrency trading volume. Think of it as our market's fluctuations – a constant flow of transactions across various exchanges. The trend is your friend and the volume is your vision of trading.
What's Cryptocurrency Trading Volume?
Imagine this: as you sip your morning coffee, traders around the globe are already immersed in the action, making buy and sell trades that impact the trading volume.
And just take a look!
Now, you might be wondering, what’s going on? Well, trading volume ain't just a bunch of fancy digits. It's a sneak peek into how traders are feeling, their trades about where their prices are heading. When volume shoots up like a rocket, it usually rides alongside big price fluctuations, impacting potential trends in the market.
How Does Trading Volume Affect Crypto Trading: Why Is Trading Volume Important?
There are always two scenarios when we talk about a cryptocurrency: up and down. Imagine it is like this: the price is like a mirror that reflects what folks who want to buy and sell think is fair.
When the number of people looking to buy is nearly the same as those wanting to sell, the price is still in the flat. This tells us that everyone has a good sense of what the price should be, creating a well-organized market. The number of people buying and selling is roughly the same. It's like having a balanced situation.
But I should be honest: stability is not always the norm in the wild world of crypto. This market is moving, thanks to stuff happening outside and decisions made by all sorts of investors, from big shots to regular folks hoping to score quick gains.
How much trading a specific cryptocurrency sees can change based on how exciting people find the project, when it gets added to major trading platforms, and how much buyers are willing to pay compared to sellers. So, checking out how active a cryptocurrency is in trading can give us a clue about how confident people are in its potential, which in turn can hint at how much the price might shift.
Websites like Coinmarketcap check how much trading a cryptocurrency does over time and how easy it is to turn it into actual money. If trading with crypto was simple, its price didn't pump or dump hard when people buy or sell. But for less-known cryptocurrencies on smaller trading platforms, not much trading can cause the price to move fast with just a few trades. But here's the thing: that lack of trading can also mean a chance to grab it at a low price on one platform and sell it for more on another.
This situation is called arbitrage. Here are a few strategies which you can use.
1) Classic arbitrage is the arbitrage between exchanges
2) Funding arbitrage is the arbitrage between exchanges that trade with futures and rais from traders a funding.
3) Futures arbitrage
Futures arbitrage is called convergence arbitrage. The mechanic is that you go long on one exchange and short a futures contract on another. Let's say you believe Bitcoin's price will hit 60k dollars. On one exchange, there's a contract lagging by 5k dollars, but on the other price was without difference. When the price converges, you'll close it at 60k dollars, minus trading fees and funding costs, pocketing the profit difference.
That’s how it works, traders. The new article will be about trading volume and how to use it in your trading strategy. Your subscriptions are always appreciated. Thank you!
