Risk management when market making: base pairs & altcoin hedging program
Crypto trading is risky. We hedge risk for our clients.
The Problem
Crypto is a hyper-volatile market. When clients provide inventory to a market maker, they hope the original USDT-denominated value can be maintained. Losses on inventory in USDT terms stem from two factors:
1. The trading strategies are generating a loss in inventory (this means the number of assets in the inventory drops).
2. The underlying USDT value of the assets in the inventory is depreciating in USDT terms.
Major Coin Hedge Program – Objectives & Implementation
The goal is to safeguard the USDT value of BTC, ETH, or other major coin inventory provided to Kairon Labs by the client. Hedging major coin spot inventory positions is relatively straightforward, as several crypto derivatives exchanges list perpetual swaps, futures, and options on the specific coin itself. For example, using a BTC perpetual swap contract to hedge an underlying BTC spot position.
Altcoin Hedge Program – Objectives & Implementation
The goal is to safeguard the USDT value of Altcoin inventory provided to Kairon Labs by the client. When coin-specific derivative hedge instruments (e.g., using ETH perpetual swaps contract to hedge an underlying ETH spot position) do not exist for a particular altcoin, the KL Trading Team leverages its crypto derivatives trading and risk management experience to research alternative solutions. This may involve using a coin-specific proxy or a basket index.
Features Common to Both Programs
Derivatives are uniquely suited for hedging underlying spot positions due to the flexibility of being able to go long or short. During the KL Trading/Client consultation on inventory hedge program suitability, topics such as estimated portfolio size, portfolio composition, hedging timeframe (days, weeks, months, etc.), and hedging style (static vs. dynamic) will be covered. This is followed by documentation issued by Kairon Labs to the client detailing the agreed hedge strategy. Periodic hedge strategy performance updates will also be provided by Kairon Labs to the client.
With experienced KL Trading staff located globally, clients can rest assured their cryptocurrency portfolio is being optimally hedged 24/7.
Ready to protect your assets and reduce your risk? Contact us today to learn more about how we can help safeguard your portfolio.
Kairon Labs provides upscale market-making services for digital asset issuers and token projects, leveraging cutting-edge algorithmic trading software that is integrated into over 100+ exchanges with 24/7 global market coverage. Get a free first consult with us now at kaironlabs.com/contact