Fundamental analysis in crypto trading is the meticulous assessment of digital assets beyond mere price trends. It delves into project fundamentals, technology, and market demand to gauge the intrinsic value of a cryptocurrency. 

‍

This analytical approach contrasts with technical analysis, which focuses on price movements and market patterns to time trades. Both methodologies are crucial in developing robust investment strategies, but fundamental analysis offers a deeper understanding of what drives value in the crypto space, empowering investors to make well-informed decisions grounded in the broader economic and regulatory environment.

‍

Key Takeaways:

‍

• Fundamental analysis offers a deeper insight into the true value of cryptocurrencies beyond surface-level price movements.
• It assesses various aspects including project fundamentals, technology, tokenomics, and the regulatory stance, providing a holistic view.
• By understanding the strengths and vulnerabilities of a project, investors can better manage and mitigate potential risks.
• Empowered with thorough analysis, investors can make more strategic and informed investment decisions, aligning with long-term goals in the volatile crypto market.

‍

The Basics of Crypto Fundamental Analysis

‍

Fundamental analysis in crypto trading involves a thorough examination of several core aspects of a project to determine its potential long-term success and inherent value. Here’s a breakdown of key concepts essential for conducting fundamental analysis:

‍

• Whitepaper — This document is the blueprint of a cryptocurrency project, detailing the technical specifics, the problem it aims to solve, and how it plans to do so. A well-articulated whitepaper provides insight into the project’s innovation and feasibility.
• Roadmap — The roadmap outlines the project’s goals and the timeline for achieving them. It is a progress tracker and can indicate the project's commitment and long-term planning. Consistent milestone achievements are a positive sign of a team’s dedication and capability.
• Technology — Underpins the entire project, where the uniqueness and security of the underlying blockchain technology are assessed. Scalability, transaction speed, and consensus mechanism are critical factors that can affect a project’s adoption and sustainability.
• Project’s Fundamentals — This encompasses the overall vision, the team’s expertise, developmental progress, and the actual use case of the cryptocurrency. It looks at how well the project addresses a real-world problem and its potential to disrupt or improve existing systems.

‍

Understanding these concepts is pivotal in assessing a crypto project's strength and potential. Fundamental analysis not only highlights the opportunities but also helps identify risks, making it an indispensable part of crafting sound investment strategies in the volatile world of crypto trading.

‍

Economic and Market Factors

‍

Understanding the economic and market factors through fundamental analysis is critical. Here are the key aspects to consider:

‍

Tokenomics

This refers to the economic model of the cryptocurrency, including its supply mechanism, distribution schedule, and any mechanisms for reducing supply (like burning or staking). Effective tokenomics can incentivise behavior that supports the project's long-term viability and price stability.

‍

Funding and Financial Health

Analysing a project's funding sources and financial sustainability is essential. Projects with robust funding from credible investors or through successful initial coin offerings (ICOs) demonstrate financial health and resource availability for sustained development.

‍

Market Dynamics and Adoption Rates

It’s crucial to evaluate how a cryptocurrency fits into the broader market. This includes understanding current and projected demand, user adoption rates, and transaction volumes. A crypto that is gaining traction and showing increasing adoption may present a favorable long-term outlook.

‍

Competitive Analysis

Assessing the cryptocurrency's position relative to its competitors helps identify its unique value proposition. A crypto that offers distinct technological advantages or fills a particular niche can stand out in a crowded market.

‍

Each of these factors plays a significant role in shaping a cryptocurrency's market performance and potential for growth, making them essential components of effective investment strategies in the crypto sector.

‍

Technological Assessments

‍

Also, the technological backbone of a blockchain project is a critical element of fundamental analysis. The core technology not only supports the project's functionality but also shapes its future scalability and security profile. As investors delve into the whitepapers and roadmaps, understanding the underlying technology—be it a unique consensus mechanism or a novel cryptographic approach—provides insights into the project's innovative potential and operational viability.

‍

Security is paramount in blockchain projects due to the decentralised nature and the high-value assets involved. A project's ability to protect against security vulnerabilities and potential breaches is a strong indicator of its technical robustness and maturity. Similarly, scalability is another vital aspect; it determines a project's capacity to handle growth in terms of transaction volume and size of the network without compromising speed or user experience.

‍

Evaluating these technological factors provides a deeper understanding of a project's strengths and weaknesses, informing better investment strategies and risk management practices in the competitive landscape of crypto assets.

‍

Community and Ecosystem Analysis

‍

The success of cryptocurrency projects often hinges on the strength and engagement of their communities. In the decentralised world of crypto, where formal marketing and governance can be minimal, a vibrant and active community not only fosters innovation and support but also acts as a crucial barometer of trust and sustainability. Positive community sentiment, demonstrated through active participation in forums, social media, and development activities, can significantly enhance a project's credibility and attract new investors.

‍

Strategic partnerships are equally critical, serving as a catalyst for ecosystem growth. By aligning with established tech firms, financial institutions, or other blockchain projects, a cryptocurrency can rapidly expand its technological infrastructure, user base, and market penetration. These collaborations often bring about integrations and innovations that are essential for staying competitive in a rapidly evolving market.

‍

Together, community engagement and strategic partnerships form the backbone of a project's ecosystem. They not only validate the project's current status but also indicate its potential for future growth and success in the broader crypto market.

‍

Regulatory and Compliance Challenges

‍

The regulatory environment plays a decisive role in the success and stability of crypto projects. Navigating the regulatory landscape is pivotal for projects to gain legitimacy and trust. Changes in regulations can greatly influence market demand and the broader adoption of cryptocurrencies. For investors, understanding the regulatory compliance of a project is essential to assess its long-term viability and legal risks.

‍

Compliance challenges can have profound implications:

‍

• Market Access: Regulatory approval can open or close significant markets. For instance, approval by the SEC or the EU can boost investor confidence and increase the user base substantially.
• Investor Protection: Projects adhering to regulatory standards are generally deemed safer, reducing the risks associated with fraudulent activities or market manipulation.
• Operational Continuity: Non-compliance can lead to legal battles or shutdowns, abruptly halting project operations and impacting investment returns.

‍

Investors must evaluate how well a crypto project adheres to the regulatory frameworks of the jurisdictions in which it operates. This includes analysing the project's whitepaper and roadmap for compliance strategies, and assessing the robustness of its risk management systems. A strong understanding of the regulatory environment not only helps in managing potential risks but also in identifying opportunities within the regulatory frameworks.

‍

Risk Assessment in Crypto Investments

‍

Identifying and managing risks is essential for anyone involved in crypto trading. The volatile nature of cryptocurrencies, driven by technological, market, and regulatory factors, necessitates a comprehensive risk assessment strategy to safeguard investments.

‍

• Technological Risks: These include issues such as security vulnerabilities in a blockchain's design or execution flaws in smart contracts that could lead to breaches or losses. Investors must evaluate the security measures detailed in the project’s whitepaper and assess the frequency and transparency of the project's code audits.
• Market Risks: Cryptocurrency markets are notoriously volatile, with prices fluctuating dramatically within short periods. This volatility can be driven by various factors, including media hype, market sentiment, and macroeconomic indicators. Traders need to be adept at reading market signs and employ strategies such as stop-loss orders to manage their exposure.
• Regulatory Risks: The regulatory landscape for cryptocurrencies is still evolving, with significant differences across jurisdictions. Changes in regulations can have abrupt and profound impacts on market dynamics and the legal standing of crypto projects. Investors should stay informed about the regulatory status of cryptocurrencies in their countries and globally to anticipate changes that might affect their holdings.

‍

Effective risk management in crypto trading involves a combination of staying updated on technological developments, closely monitoring market trends, and understanding the potential regulatory shifts. This holistic approach helps investors mitigate risks and capitalise on opportunities in the dynamic crypto market.

‍

The Bottom Line

‍

Fundamental analysis is indispensable in crypto trading as it provides a comprehensive evaluation of underlying project strengths and market potentials. By examining aspects such as technology, tokenomics, and the regulatory environment, investors gain a deep understanding of the intrinsic value and sustainability of crypto assets. 

‍

Leveraging this analysis enables informed investment decisions, minimising risks associated with market volatility and regulatory uncertainties. Ultimately, mastering fundamental analysis equips investors with the knowledge to navigate the complex crypto market and capitalise on opportunities with confidence.

We carefully gathered dozens of questions about testnet activities and our plans on CVEX that are interesting to users. So, search for everything you need below and share your wisdom with others. 

‍

About Testnet

‍

How can I get an “Early testnet adopter” role?

‍

Unfortunately, this role is no longer available, but you still have a chance to participate in other activities. 

Find more information here: https://discord.com/channels/1140960876992659506/1141560549843423352.

‍

Why isn’t CVEX Guild being updated? 

‍

We manually update all the data about users' progress every few days. So, please wait a bit and check Guild after a while. However, if you think enough time has passed, and the information still hasn't been released, contact our worker bees in Discord.

‍

Can I share CVEX achievements conditions in the chat?

‍

No. Sharing descriptions of achievements you have unlocked in the official chat rooms and CVEX community channel is forbidden. Nevertheless, we cannot regulate your actions outside our official community.

‍

How do I participate in the CVEX Tetnet? 

‍

The basic logic of our Testnet revolves around the XP points system. The number of XP points you earn is directly proportional to your contribution to testing the platform and our marketing activities. To earn points, you can complete achievements in our trading terminal, refer your friends, and follow our social media closely to avoid missing new features.

More information on our lending.

‍

Are there any guides on CVEX Testnet?

‍

Yes. We have put a lot of effort into trying to provide you with up-to-date guides about our CVEX testnet and trading in general. 

‍

You can find them here:

Youtube — https://www.youtube.com/@cvex_xyz;

Blog — https://cvex.xyz/blog;

CVEX DOCs — https://docs.cvex.xyz/.

‍

I found a bug. What should I do?

‍

Firstly, we appreciate your participation! We’re still in the testnet phase, so we’re constantly working on improving our terminal and providing you with the best possible experience. If you find a bug, you can report it on our terminal.

Check out this video guide to learn how. 

‍

How can I suggest a feature?

‍

It's always good to hear new ideas. If you know what would make CVEX better, let us know at this link: https://cvex.nolt.io/. 

‍

Why doesn't Galxe accept my tasks?

‍

Galxe is a perfect platform for our connection with you. However it operates with tons of data every day and need time to process it. Please, make sure you completed all requirements mentioned in the task and wait a while. If the problem persists, contact our community guys for help.

‍

About our Roadmap

‍

Is there a mobile version of CVEX platform?

‍

No, a mobile version is currently in development. Please look forward to upcoming updates where we plan to introduce a mobile-friendly trading experience.

‍

Will there be a white theme?

‍

Yes, we are actively working on designing a light theme for our platform. This option will be available in a future update to provide our users with more visual choices.

‍

Can I place a stop loss/take profit?

‍

Not yet, but we are committed to broadening our list of risk management tools, including the addition of stop loss and take profit functionalities. These features will enhance trading strategies and improve risk management on our platform.

‍

Is it possible to avoid signing a transaction every time?

‍

Not currently, but we are developing a trusted mode that will allow users to execute transactions without needing to sign each one individually. This feature will also help save on transaction fees and improve the trading experience.

‍

Will there be contracts for meme tokens in the future?

‍

Yes, we are open to expanding our offerings to include meme tokens. We understand the popular demand and are considering how best to integrate these into our platform.

‍

Will it be possible to trade COMMODITIES in the future?

‍

Yes, we are working on the technical aspects of integrating commodities into our platform. Once we can ensure reliable pricing models, we will offer commodities trading to meet our users' diverse investment needs.

‍

About Trading Activities 

‍

What types of orders exist?

‍

In the CVEX Platforms, there are two primary types of orders used:

‍

• Market Orders: Executed immediately at the current market price, designed for traders prioritising speed over control of the execution price.
• Limit Orders: Specify a price limit for buying or selling an asset, providing control over the execution price but not guaranteeing execution.

‍

What will happen to my position if the contract expires?

‍

If the contract expires, a position gets settled, and profits and losses are distributed based on the latest Index price.

‍

What should I do if my Margin utilisation level is over 90, and I cannot close my position? 

‍

While in the testnet stage, you can just use the faucet and click ‘increase’ under account details. As a result, your balance will be replenished, and the margin ratio will be lowered. However, we recommend not bringing your account to this state and keeping a close eye on the margin ratio to avoid such a situation.

We recommend you to read this article, where you can learn more about margin ratio: https://cvex.xyz/post/initial-and-required-margin-margin-utilisation.

‍

What is the index price?

‍

The Index Price is provided by the Price Oracle and is used in the calculation of the Mark Price for futures and perpetual contracts on the CVEX Protocol. It reflects the real-time price of the underlying asset.

‍

Check out this guide for a better understanding of pricing models: https://cvex.xyz/post/concepts-of-last-mark-and-index-prices.

‍

What is the mark price?

‍

The Mark Price in the CVEX Protocol is continuously re-evaluated to reflect the contract's fair price, serving as an anchor to the market's perception of the true value of a contract, independent of immediate order book fluctuations. It is used to assess traders’ position value for futures and perpetual contracts, which is used to calculate equity and maintenance margins. 

‍

The Mark Price is calculated from the Index Price of the underlying asset, provided by the Price Oracle, and the Last Price, obtained from the contract's order book. The Last Price is the median value between the lowest ask and the highest bid prices in the CVEX order book, averaged for the Index Price updates. The protocol computes the contract basis as a moving average of the difference between the Index Price and the Last Price, and the current Mark Price is calculated by adjusting the current Index Price with the basis.

Check out this guide for a better understanding of pricing models: https://cvex.xyz/post/concepts-of-last-mark-and-index-prices.

‍

How can I increase my leverage?

‍

To increase your leverage on the Crypto Valley Exchange, you can employ hedging strategies. For example, holding a balanced long position in Ethereum (ETH) and a short position in Bitcoin (BTC) can extend leverage up to 15x. 

Additionally, for larger options portfolios that are well-hedged, particularly where the delta of the portfolio is well managed, you can build a cost-effective book of options with leverage ratios reaching up to 1000x. It's also noted that leverage varies for commodities, ranging from 10x to significantly higher depending on the commodity's volatility.

Also,we are working on manually adjustable leverage, which should be done for public mainnet release.

‍

I don’t have ETH for commissions will I be able to trade?

‍

Yes. You don't have to have ETH in your wallet to trade on CVEX.

While we are in the testnet stage, you use our inbuilt faucet, so you don't need money at all. At the mainnet stage, CVEX will use the meta-transaction principle. In short, when you open an order or perform any other action that executed on-chain CVEX pays gas for you and then compensates it through operational fees.

So you don't have to worry if you don't have ETH in your wallet.

‍

What is the Trading fee and operational fee?

‍

The Operational Fee is a fixed cost for each trade, paid in USDC from traders' collateral deposits, designed to compensate for the gas used by protocol participants in managing traders' orders and positions. It is independent of trade size and is directed to the platform's Operational Fund.

The Trading Fee is a relative fee based on the notional value of each order. The collected trading fees are distributed between the Platform Fund and the Protocol Fund, with the Platform Fund covering the expenses of platform operators and the Protocol Fund allocated for staking rewards, protocol development, and operational needs.

‍

What measures does CVEX take to ensure the security and stability of its decentralised derivatives exchange?

‍

CVEX ensures the security and stability of its decentralised derivatives exchange through several measures, particularly in volatile market conditions:

• On-chain Portfolio Risk Management: CVEX employs a Value-at-Risk (VaR) model for on-chain portfolio risk management, allowing traders to utilise higher leverage while maintaining controlled risk exposure. This model accounts for volatility, correlations, and tail risks to estimate potential losses within a specified confidence interval.

• Automated Clearance Bots: The exchange uses automated Clearance Bots that operate within set risk parameters deterministically to reinforce stability and security. These bots are part of an active market monitoring system.

• Risk Oracles: Specialised Risk Oracles adjust risk parameters in real-time to adapt to market changes, ensuring that the exchange can respond quickly to fluctuations in market conditions.

• Fully Automated Default Funds: An extra layer of protection is provided by fully automated Default Funds, which help maintain market stability in volatile conditions.

• Advanced Margin Methodology: The CVEX Protocol calculates margin requirements using dynamic risk models that align collateral obligations with the actual risks of traders’ portfolios. This includes a concentration adjustment to limit risks from an overconcentration of open interest in a single portfolio.

• Liquidation Protocol and Counterparty Risk Management: The liquidation protocol prioritises market order liquidations to realise fair value, utilising the Default Fund where necessary to cover losses. Counterparty liquidations are a last resort, utilised only to preserve market balance when all other measures are exhausted.

‍

Do you have risk management tools?

‍

Yes, the protocol incorporates risk management tools and strategies. These include:

Transparent Risk Parameters. The platform operates with transparent risk parameters encoded into smart contracts to mitigate trading risks.

Independent Account Management. Each account is treated as an independent entity with its own risk profile, enabling precise risk management.

Also, you may read the article on our VaR-Margin system to understand more: https://cvex.xyz/post/the-impact-of-value-at-risk-var-model-at-cvex.

‍

How to partially close the position?

‍

To close a part of a position, you can do the opposite action. If you open a long position, you need to sell the part of the contract by which you want to reduce your position. If you opened short, you should do the opposite.

It is important to click on the ‘Reduce-only’ checkbox when opening a new order.

‍

Futures contracts play a pivotal role in the trading world, especially in the rapidly evolving landscape of cryptocurrency trading. There are two main types of futures contracts that crypto traders can utilise: classic (dated) futures and perpetual futures. Understanding the differences between these two types is crucial for anyone involved in the dynamic world of crypto trading.

‍

Dated futures contracts, often referred to as dated futures, have a specific expiration date and are typically used for hedging or speculating on the future price of an asset, including cryptocurrencies. 

‍

On the other hand, perpetual futures, which are particularly popular in the crypto sphere, do not have a fixed expiration date, offering traders a different level of flexibility in managing their positions.

‍

Each of these contract types offers unique benefits and challenges, especially in the context of crypto trading, where price volatility is often high. Understanding how each contract operates can help traders navigate the complexities of crypto markets more effectively.

‍

 Definition of Classic (Dated) Futures Contracts

‍

Classic, or dated, futures contracts are standardised financial agreements that obligate two parties to buy or sell an asset at a predetermined price on a specified future date. These contracts are typically traded on regulated exchanges and cover a wide range of underlying assets, including commodities, stocks, and cryptocurrencies.

‍

How Classic Futures Are Typically Structured

‍

Dated futures contracts have a set expiration date, which means they come with a defined lifespan. Traders agree to the terms of the contract, which include the quantity of the asset, the price, and the expiration date. As the expiration date approaches, the price of the contract usually converges with the spot price of the underlying asset, influenced by factors such as interest rates, storage costs, and market demand. This structure allows traders to hedge against future price movements or speculate on asset prices.

‍

Classic futures contracts play a crucial role in the financial world. They are widely used for hedging, allowing businesses and investors to protect themselves against adverse price movements. For example, a farmer might use futures contracts to lock in a selling price for their crops, while an airline might use them to secure fuel prices. 

‍

Additionally, traders use dated futures for speculation, aiming to profit from price changes. These contracts facilitate price discovery and liquidity in various markets, contributing to the overall efficiency of the financial system.

‍

Definition of Perpetual Futures Contracts

‍

Perpetual futures contracts are a type of derivative that allows traders to speculate on the future price of an asset without a set expiration date. Unlike classic futures, perpetual futures do not have a fixed term, which means traders can hold their positions for as long as they wish. These contracts are especially popular in the cryptocurrency markets, where they offer continuous trading opportunities.

‍

How Perpetual Futures Differ from Classic Futures

‍

The key difference between perpetual and dated futures lies in their expiration dates. While classic futures have a specific date at which they must be settled, perpetual futures do not, offering traders the flexibility to maintain their positions indefinitely. 

‍

Additionally, perpetual futures typically use a funding rate mechanism, which adjusts periodically to ensure that the contract price aligns with the underlying spot price. This funding rate incentivises traders to take positions that bring the contract price back in line with the spot price.

‍

Perpetual futures have found a significant niche in the trading world, particularly in the cryptocurrency space. Their flexible nature allows traders to capitalise on short-term market movements without worrying about contract expiration. This feature is beneficial in highly volatile markets, where timing is critical. Perpetual futures also facilitate leveraged trading, enabling traders to amplify their positions and potentially increase their returns. These contracts offer a dynamic trading environment and cater to a wide range of trading strategies, making them a valuable tool for crypto traders and speculators.

‍

Key Differences Between Dated and Perpetual Futures

‍

Expiration

‍

• Dated futures contracts have set expiration dates. This means traders have a limited time frame to manage their positions and must settle or roll over their contracts before the expiry date. The fixed expiration date helps provide clarity on when the contract must be concluded.

‍

• Perpetual futures contracts, on the other hand, do not have fixed expiration dates. Traders can hold their positions indefinitely, providing greater flexibility in reacting to market conditions. This open-ended nature of perpetual futures aligns well with the continuous nature of cryptocurrency trading.

‍

Funding Mechanism

‍

• Classic futures do not incorporate a funding rate mechanism. The contract price is influenced primarily by the spot price of the underlying asset, along with other factors like interest rates and storage costs. This traditional pricing approach is straightforward but lacks a dynamic adjustment mechanism.

‍

• Perpetual futures use a funding rate mechanism to align the contract price with the underlying spot price. This rate, which is periodically exchanged between long and short positions, ensures that the contract closely tracks the spot market. The funding mechanism serves as a stabilising force, reducing deviations between the contract and spot prices.

‍

Trading Flexibility

‍

• The trading periods for classic futures are restricted by the contract's expiration date. Traders need to plan their entry and exit strategies within the contract’s lifespan, which can limit their flexibility in managing their positions.

‍

• Perpetual futures offer continuous trading opportunities, without the constraints of an expiration date. Traders can enter and exit positions at their convenience, aligning with market trends and personal strategies. This flexibility is particularly beneficial in highly volatile markets where timing is crucial.

‍

‍

Pricing Mechanisms

‍

The pricing mechanisms for classic futures and perpetual futures differ based on their unique characteristics. Dated futures derive their prices from various factors, including the spot price of the underlying asset, interest rates, storage costs, and other economic influences. As the contract nears its expiration date, the futures price typically converges with the spot price, thanks to the process of arbitrage. This helps align the futures price with the actual market value of the asset.

‍

Perpetual futures, on the other hand, employ a funding rate mechanism to maintain a close relationship with the underlying spot price. The funding rate is a periodic payment exchanged between long and short positions to ensure the contract price remains aligned with the spot market. When the contract price deviates from the spot price, the funding rate incentivises traders to correct the imbalance, helping to stabilise the contract's value.

‍

How These Mechanisms Impact Trading Decisions

‍

The pricing mechanisms of both types of futures contracts significantly impact trading decisions. In classic futures, the convergence of the futures price with the spot price near expiration can influence when traders choose to enter or exit their positions. Understanding how factors like interest rates and storage costs affect the pricing can also help traders make informed decisions.

‍

For perpetual futures, the funding rate directly affects the cost of holding positions. Traders must monitor these rates closely, as they can influence the profitability of long or short positions over time. High funding rates, for example, can make it costly to maintain a long-term position, while negative funding rates may benefit short positions. This dynamic pricing environment requires traders to be vigilant about market conditions and adjust their strategies accordingly.

‍

Conclusion

‍

Classic (dated) futures and perpetual futures offer distinct features and benefits for traders and investors. Classic futures, with their set expiration dates, are ideal for traditional hedging and speculation. Perpetual futures, with their open-ended nature and dynamic funding rates, cater to continuous trading and leveraged strategies, particularly in the cryptocurrency space. Understanding the unique pricing mechanisms and trading flexibilities of each contract type is essential for making informed trading decisions. By carefully evaluating these characteristics, traders can align their strategies with their financial goals and effectively navigate the diverse futures markets.

‍

In derivatives trading, knowing your prices is key. On CVEX, understanding the Last, Mark, and Index prices is crucial for making informed decisions. These price types impact everything from trade execution to risk management. This guide will simplify these concepts, helping both newcomers and seasoned traders grasp when and how to use each price type effectively. Stick with us to demystify these terms and boost your trading strategy on CVEX.

‍

Overview of Price Types

‍

On CVEX, traders encounter three main types of prices: Last, Mark, and Index. Each serves a unique role in the trading ecosystem.

‍

Last Price

This is the median value between the lowest selling price (ask) and the highest buying price (bid) currently in the CVEX order book. It reflects the most recent price agreed upon by buyers and sellers.

‍

Mark Price

Used mainly for calculating the value of open positions in futures and perpetual contracts, the Mark Price helps prevent unnecessary liquidations during market manipulation or extreme volatility. It's derived from the Index Price, adjusted by the average difference (basis) between the Last Price and the Index Price.

‍

Index Price

Sourced from a Price Oracle, the Index Price aggregates data from various external exchanges to represent the true market value of the underlying asset. It is crucial for ensuring that the Mark Price remains anchored to real-world trading conditions outside of CVEX.

‍

Understanding these prices helps traders manage their positions more effectively, aligning their strategies with current market dynamics.

‍

Last Price

‍

The Last Price on CVEX serves as a snapshot of the most recent consensus on value between buyers and sellers. It's pivotal for traders as it reflects the latest price at which a trade was executed, thus acting as a real-time indicator of current market conditions.

‍

How It's Determined on CVEX:

‍

On CVEX, the Last Price isn't just about the last individual transaction. Instead, it is calculated as the median of the lowest selling price (ask) and the highest buying price (bid) present in the order book. This value is then averaged over the same time frame that the Index Price updates occur. This method smooths out any anomalies caused by single transactions and provides a more stable and reliable price for traders to reference, ensuring that the price reflects a true median market value rather than outliers.

‍

When to Use It?

‍

The Last Price is particularly useful for traders who need to make quick decisions based on the most recent trading data. It's ideal for day traders or those involved in high-frequency trading where timing and immediate market conditions are critical. Understanding the Last Price helps traders grasp how the market has recently valued an asset, which is essential for short-term trading strategies that rely on quick, tactical entries and exits.

‍

Mark Price

‍

The Mark Price is critical in the trading of futures and perpetual contracts on CVEX. It serves as the primary reference for valuing positions and determining liquidation points, ensuring that these calculations are based on a stable and manipulation-resistant price metric.

‍

How It's Determined on CVEX:

‍

Mark Price is calculated by adjusting the Index Price with the basis, which is a moving average of the difference between the Last Price and the Index Price. This methodology allows the Mark Price to reflect both current market conditions and average price trends, smoothing out the effects of short-term volatility or manipulation in the order book.

‍

When to Use It?

‍

Traders should rely on the Mark Price primarily to assess the health of their open positions in derivatives like futures and perpetual contracts. It is essential for understanding potential margin requirements and avoiding unwanted liquidations. The Mark Price's stability makes it suitable for traders who need consistent, reliable pricing data to manage longer-term positions or to strategise around entry and exit points during more volatile market periods.

‍

Index Price

‍

The Index Price is vital as it represents the aggregated perception of the underlying asset's true market value across various exchanges. It's an essential benchmark on CVEX, especially for derivatives trading, where it helps ensure that the contract prices are aligned with the broader market conditions.

‍

Source on CVEX:

‍

The Index Price on CVEX is sourced from a Price Oracle, which gathers data from multiple top exchanges to provide a comprehensive and reliable measure of the current value of an asset. This integration helps prevent price manipulation by dispersing the influence any single exchange could have on the price determination.

‍

When to Use It?

‍

Traders should look at the Index Price when evaluating the overall market trends and the inherent value of an asset without the immediate influences of supply and demand mismatches that can occur on a single exchange. It is particularly useful for making strategic decisions in futures and options trading, where accuracy in the underlying asset's price is crucial. Understanding the Index Price helps traders gauge the market consensus on asset value, aiding in more informed trading decisions.

‍

Relationship Between the Prices

‍

Understanding how Last, Mark, and Index Prices interact is crucial for traders on CVEX. These prices each play a unique role but are interdependent, influencing and stabilising each other to reflect accurate market conditions.

‍

• Last Price reflects real-time market transactions, influenced by immediate buyer and seller activities.
• Index Price offers a broader market perspective by aggregating data across various exchanges, providing a benchmark for the true market value.
• Mark Price connects the immediate market activities and broader market trends by adjusting the Index Price with the basis derived from the Last Price. This adjustment helps in mitigating any temporary market anomalies caused by low liquidity or price manipulations on single exchanges.

‍

Example Scenarios:

‍

Scenario 1: Sudden Market Spike

‍

If there's a sudden spike in the Last Price due to a large buy order on CVEX, the Mark Price will adjust less dramatically because it’s tempered by the Index Price, which aggregates more stable prices across multiple exchanges.

‍

Traders relying solely on the Last Price might perceive a buying opportunity, but those watching the Mark Price receive a moderated view, potentially saving them from buying at a peak based on skewed data.

‍

Scenario 2: Broader Market Downturn

‍

When the Index Price begins to reflect a downturn based on global market trends, the Mark Price will follow, even if the Last Price on CVEX hasn’t yet adjusted due to localised trading patterns.

‍

Traders can anticipate a potential decline in the CVEX market and adjust their positions accordingly, using the Mark Price as a more reliable indicator of impending changes.

‍

When to Use Each Price:

‍

1. Use the Last Price for immediate entry or exit decisions when market conditions match your trading strategy.
2. Refer to the Index Price to understand long-term trends and set broader strategic goals.
3. Rely on the Mark Price for managing open positions, especially in derivatives, to protect against volatility and price manipulation, ensuring fair trading conditions and risk assessment.

‍

By leveraging the distinct yet complementary roles of these three price types, traders can optimise their strategies, manage risks more effectively, and make decisions that align with both immediate conditions and broader market movements.

‍

Wrapping Up

‍

Understanding Last, Mark, and Index prices equips traders with essential insights into market dynamics on the CVEX platform. By discerning the interplay between these price types, traders can enhance their strategic decision-making, manage risks effectively, and adapt to both sudden changes and long-term trends in the cryptocurrency market.

‍

Understanding key market indicators is essential for anyone looking to navigate the complexities of financial markets successfully. This blog delves into two fundamental metrics: Open Interest and Trading Volume. Both indicators are pivotal in assessing Market Liquidity and Price Movements, offering traders deep insights into Market Trends and Trading Opportunities. 

‍

By comparing and contrasting these indicators, traders can better understand the dynamics of Contract Trading and make more informed decisions. This analysis not only highlights the differences between Open Interest and Trading Volume but also illustrates their interplay and impact on daily market activities. Join us as we explore how these crucial indicators can guide your trading strategies in both Futures Contracts and Options Trading.

‍

What Is Volume? 

‍

Trading volume represents the total number of financial instruments traded during a specific period, typically a trading day. It is a critical measure in markets because it indicates the level of activity associated with a particular asset or security. High trading volume often signals strong interest in the asset, whether for buying or selling, and is considered a fundamental indicator of market liquidity.

‍

How Volume is Measured

Volume is calculated by tallying up the total number of shares, contracts, or tokens traded within a given timeframe. In most markets, this figure resets daily, meaning that the volume measured reflects the activity for one trading day only. This reset helps traders gauge the freshness of activity and sentiment each day, providing a clear view of daily market dynamics.

‍

Significance of Volume in Trading

The role of trading volume is pivotal as it helps validate the strength behind price movements. For instance, a price increase accompanied by high volume is typically seen as more robust and likely to persist than a similar move with low volume. It also helps traders assess the intensity of market sentiment, whether bullish or bearish, and anticipate potential continuations or reversals in price direction.

‍

While the concept of volume is universally applicable across various asset classes, its implications can differ. In the stock market, volume can help identify breakout stocks or those in consolidation. In the world of cryptocurrencies and derivatives markets such as futures and options, volume plays an equally important role but with distinct nuances. Crypto markets, for example, operate 24/7, making the interpretation of daily trading volume slightly different due to the non-stop nature of trading. Similarly, in options and futures contracts, volume can indicate not just the liquidity but also the maturity of the market or specific contracts.

‍

What Is Open Interest?

‍

Open interest is a key metric in the derivatives market, representing the total number of outstanding derivative contracts, such as futures and options, that have not been settled. For traders in the crypto derivatives market, open interest provides a snapshot of total market involvement. Unlike volume, which counts transactions during a trading day, open interest measures the flow of money into the futures and options market, giving an idea of how much money is at stake.

‍

Calculation of Open Interest

Open interest is determined by counting all open contracts that have been entered into and not yet liquidated by an offsetting trade or delivered upon. In the crypto markets, this number is crucial as it is updated at the end of each trading day, providing insights into the flow of money for each contract. Every new contract opened increases the open interest, and every closed contract decreases it.

‍

Interpreting Changes in Open Interest

Changes in open interest can serve as a powerful indicator of the market sentiment and the strength of the current price trend. If open interest is increasing during a market rally, it suggests new money is coming into the market, supporting a continuation of the trend. Conversely, if open interest decreases, it may indicate that the market is losing momentum, which could precede a price decline or market stabilisation.

‍

It's important to understand that open interest is not an indicator of market ownership but rather the number of open, unsettled contracts. In crypto derivatives markets, this distinction is crucial as open interest provides a clearer picture of the leverage, risk, and commitment traders are willing to undertake, which differs significantly from just looking at volume or price movements alone.

‍

Comparing Volume and Open Interest

‍

Trading volume and open interest are complementary indicators that together provide a fuller picture of market activity and liquidity. Volume measures the number of contracts traded within a given timeframe, reflecting immediate market action and sentiment. Open interest, on the other hand, counts the total number of outstanding contracts and offers insights into longer-term market commitment and potential future activity. 

‍

When analysed together, these indicators can reveal not only the depth and breadth of market activity but also the strength and potential sustainability of price movements.

‍

Analysing Market Trends

To gauge the strength of market trends, both volume and open interest are indispensable. For instance, a rising market trend accompanied by increasing open interest and volume suggests new money is entering the market, which typically reinforces the trend's robustness. Conversely, if prices rise but volume and open interest decline, the trend may lack support and could be nearing its end, indicating a potential reversal or slowdown.

‍

Scenarios Analysis:

‍

1. Bullish Trend: Imagine a scenario where both price and open interest are increasing, but volume is also on the rise. This indicates that new positions are being opened, and more traders are participating, suggesting a strong bullish sentiment and a potential continuation of the uptrend.
2. Bearish Trend: Conversely, if prices are falling and open interest is increasing while volume remains high, it may indicate that new short positions are being established. This scenario could point to a strong bearish trend with increasing market participation in anticipation of further declines.
3. Consolidation or Reversal: Should there be an increase in price with a drop in open interest but an increase in volume, it may signal that the market is undergoing profit-taking or liquidation of positions. Traders might be closing their positions rather than opening new ones, which could either lead to a market consolidation or a potential price reversal.

‍

Understanding these dynamics is crucial for traders who need to assess not just current market conditions but also anticipate future movements. By closely monitoring both volume and open interest in relation to price changes, traders can make more informed decisions, leveraging insights into both the immediate actions of market participants and longer-term market trends. This approach is particularly valuable in the crypto derivatives market, where the combination of rapid price movements and the leveraging effect of futures and options can significantly amplify risks and opportunities.

‍

Conclusion

‍

Understanding both trading volume and open interest is pivotal for any trader aiming to grasp the full spectrum of market dynamics. These indicators are not just measures of market activity; they are essential tools that, when used together, can significantly enhance the accuracy of your trading decisions. By integrating volume and open interest into your trading strategies, you gain deeper insights into market sentiment and price movements, which are crucial for making well-informed trades.

‍

For those looking to delve even deeper into market analysis techniques, our blog offers a wealth of advanced trading concepts. Enhance your trading acumen by exploring our comprehensive guide on crypto technical analysis here: Guide on Crypto Technical Analysis. Equip yourself with the knowledge to navigate the complexities of the derivatives market more effectively.

‍

FAQ 

‍

1. Which is more important: volume or open interest?

‍

Both volume and open interest hold crucial roles in trading. High volume can indicate more liquid trading opportunities, facilitating easier entries and exits. Conversely, open interest provides insights into the total number of active, unsettled contracts, reflecting the depth and potential sustainability of market trends.

‍

2. How can an option have volume but no open interest?

‍

Volume measures the number of contracts traded, while open interest counts only those contracts still open or unsettled. If a trading day ends with only closing transactions, volume will register these trades, but open interest will not increase as no new contracts remain open.

‍

3. What is the relationship between price, volume, and open interest?

‍

The interplay of price, volume, and open interest helps assess market strength. A price increase coupled with declining volume and open interest suggests a weakening market. Conversely, if prices fall while volume and open interest rise, the market may also be weakening. A strong market typically sees prices decline with both volume and open interest decreasing.

‍

4. What does high open interest and high volume signify?

‍

High open interest and high volume indicate robust activity and interest in a market, suggesting that a large number of participants are engaged in trading a particular asset. This scenario often leads to better liquidity and more efficient markets, allowing traders to execute large trades more easily without significantly impacting the price.

‍

Achievements are in-app rewards, that a tester receives for a certain action in our Testnet. At the moment, there are already a few dozen Achievements available. But we will expand the list every fortnight and inform the community about it.

‍

Here's a kicker: conditions required to get a particular Achievement are unknown. Therefore, we invite you to experiment in our trading terminal, make the most of the testnet and other marketing activities to unlock as many achieves for your account as possible.

‍

Remember that some Achievements are given not for a single event, but for a sequence of actions or prolonged activity. So be patient to earn them all!

‍

Why Do You Need Achievements?

‍

Each Achievement you receive will give you three things:

1. The joy of collecting;
2. A reason to discuss it with your friends;
3. Extra XP points;
4. 👀.

‍

No one knows how XP points will convert into real benefits for testnet users. But if you take a magic ball and ask it if it's worth getting Achievements, it will say yes. We believe in magic, how about you?

‍

Achievements are divided into 4 levels of difficulty:

• Common;
• Rare;
• Epic;
• Legendary.

‍

The higher the level of the achievement, the more XP points you will get for it. But the action at Legendary rank will be much harder than at Common rank, of course. 

‍

Earning Your First Achievement

‍

Now, let's get your first Achievement (and 20 XP points at the same time). 

‍

Step 1. Log in to the CVEX trading terminal.

‍

Go to our trading terminal and perform all the actions necessary to start trading (connecting your wallet and funding your test account). You can read more about them in our Testnet guide:

‍

https://cvex.xyz/post/the-official-cvex-testnet-guide 

‍

‍

Step 2. Making your first transaction with futures.

‍

Now you need to make your first transaction. To do this, choose any contract you are interested in, for example, BTC-28JUN24.

‍

‍

After that, select "Market" in the Place Order section.

‍

‍

Enter the amount for which you want to open a trade and click the Place Buy button.

‍

‍

Step 3. Check the progress and rejoice.

‍

Voila, you should have received your first Achievement for this simple action. Go to the website and check your progress. 

‍

‍

Note that it may take time for the platform to credit you for the achievement, so wait a little while. If after a while, the achievement still hasn't appeared in your profile, then contact our helpful community managers in Discord.

‍

Conclusion

‍

Achievements are a great opportunity to earn extra XP points on CVEX by performing non-standard actions and having fun on our testnet. We look forward to seeing you at the top! Happy testing!

‍

Find us here:

‍

Website — https://cvex.xyz/ 

Twitter — https://twitter.com/cvex_xyz 

Discord — https://discord.com/invite/DRma7Z9BTz 

Achievements lending — https://affiliate.cvex.trade/achievements

‍