Strategy Example(Future and Spot)

With Future and Spot Protocol

Basis trading strategies

Vanna enables traders to execute basis trading strategies by utilizing both the futures market and the spot market. Here is an example of a basis trading strategy involving ETH in the perpetual market. Let's say the current price of Ethereum (ETH) is $3000. The trader, let's call them Alex, decides to execute basis trading strategy

1. Alex opens a short position:

   • Alex sells 1 ETH futures contract at the current price of $3000 per ETH.

2. Hedging the short position using the spot market:

   • To hedge the risk of the short position, Alex simultaneously purchases 1 ETH in the spot market.

   • Alex buys 1 ETH at the current spot price of $3000.

Now, as the market sentiment generally favors long positions, long traders typically pay short traders through the funding rate in perpetual markets. This means that, over time, Alex stands to benefit from this discrepancy.

By maintaining the short position in the futures market while hedging with a spot market purchase, Alex strategically positions themselves to capitalize on the funding rate differential. Over time, as long positions pay short positions via the funding rate, Alex aims to achieve a significant annual return on their investment by exploiting this market dynamic