Smart Money Is Jumping Into An ADA-Related Neutral Transaction

Smart money eyes market-neutral trades as ADA. Traders can purchase perpetual contracts and simultaneously sell tokens in the spot market to safely pocket the funding rate.

This Friday Markus Thielen, head of strategic research at Matrixport, issued a note to clients that ADA’s annual funding rate, or cost, to hold long (bullish) / short ( down), has dropped to an average of -14% across major exchanges. This is a rare occurrence, so traders can buy perpetual contracts and simultaneously sell tokens on the spot market to safely pocket funding rates.

So let’s say an entity opens a long position in the ADA perpetual futures market right now. In that case, it would receive an annual funding rate of 14% – an attractive yield, considering the 10-year US Treasury bond currently yields just over 4%.

However, if the price of ADA rises, the resulting loss could be more substantial than the 14% gain generated from the funding rate. Institutions can eliminate risk by selling ADA tokens on the spot market, thus creating a market-neutral position.

Note that the rate at which tokens are borrowed needs to be lower than the funding yield, or else the market-neutral strategy will yield a loss.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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