How to Use Diversification to Trade a Turbulent Market
Bulls vs. Bears. The long history of two animals battling against each other on Wall Street has now paved its way into the crypto markets. After a long reign, the bulls have taken a step back and the bears have taken over. That said, most of us are aware that the market conditions right now aren’t the most trader-friendly; stable coins have been destabilized and there’s a bloodbath with red candlesticks taking dips.
So, what could help a trader or an investor at this point? The simple answer is diversification, or the golden rule of never putting all your eggs in one basket. Striking the right balance in terms of diversification can sometimes be tough, which is why having the right mechanism or tool can help.
What is diversification?
Diversification is the strategy of spreading your assets across several asset classes to minimize your exposure to only one type. This method is intended to help minimize your portfolio’s volatility over time and maximize returns by investing in different assets that would react differently under the same circumstances. Some of the benefits of diversification include:
- Loss risk minimization: Asset diversification reduces the risk of losing money in a single asset type. This occurs because if one asset or asset class performs poorly, another asset or asset class performs well. This helps to balance the outcome and decreases the risk of portfolio loss.
- Capital preservation: Diversifying assets reduces the risk of capital loss. Debt instruments provide a set yield and capital protection, so including them in your portfolio ensures capital preservation.
- Greater returns (at the same amount of risk): In institutional finance, diversification has been found to provide higher returns for the same amount of risk. There are times when particular asset classes perform very well in the market, and having a well-diversified portfolio ensures that you profit from this. On the contrary, especially during a bear market, some assets won’t perform as well, and having a diverse portfolio will average the losses.
Therefore, to keep things simple in terms of diversification, Durafi is one of those tools that a trader, and more so a crypto trader, would find necessary in order to trade effectively even in a bearish period of the market.
What does Durafi do being a decentralized exchange?
Durafi is a DeFi protocol for trading cryptocurrency index derivatives and structured products. It intends to democratize access to powerful crypto derivatives and lower the cost of active trading methods by lowering transaction costs and simplifying crypto diversification. Its mission is to make it easier for people to invest in significant cryptocurrency trends without having to manually buy and sell hundreds of tokens or identify specific winners and losers with the help of their first innovative product, the Durafi Fund Token (DFT).
Durafi makes use of the best of both worlds by combining the fundamentals of traditional finance with the dynamics of decentralized finance. Some of Durafi’s top tier features include:
- Durafi’s patented Durafi Liquidity Engine combines the benefits of decentralized liquidity pools with high-speed order books and proprietary innovations to maximize slippage and market effect based on each trade’s parameters.
- Trade DeFi Derivatives at Fast Speed and Low Cost: Users may exchange single tokens or index derivatives at high speed and low-cost thanks to Durafi’s Derivatives Generator and Liquidity Engine.
- Designed to Support Active Trading Strategies: Durafi’s derivatives products trade without lockups or other limitations. They are available 24 hours a day, 7 days a week, and can be traded at high speeds using their API, which was created by and for high-frequency traders.
All of this is possible thanks to “Durafi Fund Tokens” (DFTs), which are traded on their exchange and track the performance of cryptocurrency baskets like the Durafi Crypto Index, which tracks major cryptocurrencies, the Durafi DeFi Index, which tracks major decentralized finance protocols, and the Durafi NFT Index, which tracks major NFT platform tokens.
Each token is intended to represent the index components’ total market performance, thus making diversification easier than ever. With Durafi, neither the bull nor the bear market can stop you from putting your eggs in different and diversified baskets.