What is a rebalancing bot?
The bot itself is an algorithm that changes the position of the portfolio with the selected combination of cryptocurrencies. The point is to make a purchase on the fall of the price and sell on its increase. At the same time, the balance of the value of cryptocurrencies is maintained due to the intervals and thresholds indicated by the strategy. Based on this, rebalancing is performed.
Managing a diversified portfolio can be challenging. To a greater extent, difficulties arise for inexperienced traders. Among the problems, we can highlight the need for rebalancing, which not all users are aware of.
Rebalancing refers to the adjustment of assets in the digital portfolio. This keeps the balance between them. Trading is conducted to support a certain combination of cryptocurrencies, taking into account the investor's tolerance for risks and his investment goals.
The new bot developed by Binance is aimed at providing an easy and convenient portfolio adjustment. To do this, fixed time periods are used or when there is a deviation from the specified parameters.
Why is rebalancing required?
This procedure is necessary in case of strong volatility. At the same time, the value of some cryptocurrencies in the portfolio should change. For example, if bitcoin is growing strongly, then there will be an excess of it in the portfolio, but other coins will not be enough. In such situations, it is necessary to rebalance, in other words, partially sell bitcoin in order to purchase other cryptocurrencies. This will restore the balance.
Rebalancing is required for a number of reasons:
1. Allows you to control risks by ensuring portfolio diversification and preventing excessive concentration of one token.
2. Helps to follow the previously created investment strategy and goals.
3. Allows you to increase profits by selling an overvalued asset and buying an undervalued one.
Rebalancing allows you to optimize the portfolio in terms of risks and profitability. If you adhere to a systematic approach in trading, then it is necessary to carry out this procedure on a regular basis. At the same time, carefully evaluate market conditions and your investment goals.
How does the Binance rebalancing bot work?
To get access to the bot, you need to have a cryptocurrency exchange account. After logging in, just visit the trading strategies section. There will be a rebalancing bot.
It is an automatic adjustment of positions with selected pairs of tokens. This strategy allows you to maintain an equivalent asset price ratio at specified time intervals or trading values.
The bot has an auto-balancing function. It is triggered when the ratio of the specified tokens changes, or at certain intervals.
How is the rebalancing in the ratio of tokens?
This mode presupposes rebalancing only when the ratio of the specified cryptocurrencies changes. At the same time, the indicators exceed the threshold values. The latter are given 4 options: 0.5, 1, 2 and 5 percent.
The following example is given:
· Bitcoin and BNB are in the portfolio.
· The interval is worth every minute.
· The ratio is 1%.
· The investment is 800 USDT.
· The initial distribution of tokens is 50%.
Based on these data: the portfolio contains 400 USDT in bitcoins and the same amount in BNB. The system automatically calculates the ratio of cryptocurrencies in the portfolio. In this example, it is 50/50.
If the token price movement has started on the market, because of which there are already 450 USDT in bitcoins and 550 USDT in BNB in the portfolio, then the total cost already reaches one thousand USDT. At the same time, the distribution has changed. Bitcoins are now 45%, and BNB is 55%.
As a result, the difference in proportions exceeds the established 1%. This gives a signal to the bot to rebalance. To do this, he will buy 5% of bitcoins and sell 5% of BNB.
In this case, the following calculation is made:
BTC=450+(1000*0.05)=500 USDT
BNB=550-(1000*0.05)=500 USDT.
As a result, the portfolio will return to the original coin ratio in the set values of 50/50.
How does time rebalancing work?
The bot checks the ratio of coins at specified intervals. The system offers options from 30 minutes to 28 days.
The following example is given:
· Bitcoin and BNB are in the portfolio.
· The period is a week.
· The ratio is worth 0.5%.
· An investment of 800 USDT.
· The distribution is 50%.
The bot performs an automatic calculation of proportions in the protfel every week. If he notices deviations in the share of assets above the set parameters, then he starts rebalancing. The process is similar to the previous one.
This type of rebalancing allows you to adapt to the current volatility in the crypto market. When the value of assets is relatively stable, rebalancing can rarely be carried out. However, with strong fluctuations in the exchange rate, it is worth using a short periodicity. Otherwise, high portfolio diversification will not be achieved.
