Time and again, Coin Crunch India has been critical of cryptocurrency trading competitions in India. But they are becoming more and more popular. There are so many of them it is hard to keep track. But no matter how big these competitions get, your participation may end up in you losing more money than you can win.
I am not saying you cannot win in such competitions. I have won a couple of times too, but that was before they became such high stakes. If there are huge number of prizes like the recent competition in Coindelta and Koinex that rewarded 500 participants, you stand a chance of winning something atleast. But, your chance of winning that astounding first prize is next to impossible.
Taking the same examples, the top 10 highest volume traders on Coindelta and Koinex won around 40000 to 80000 INR worth of cryptocurrency. The trade volumes these ‘winners’ pull off are in crores of rupees as well.
It is not easy to win these competitions and the ones who win these have their own murky strategies which leave the rest of the people way behind in the competition. We have made a list of few known strategies these traders pull off to win trading competitions.
Strategies used to win Trading Competitions
Wash trading is a serious concern in Cryptocurrency markets. In the simplest form wash trading can be explained as one single trader buying and selling cryptocurrencies to manipulate the prices.
For example, I have two accounts on an exchange. Now I keep buying and selling cryptocurrencies between these accounts to create an illusion of price rise.
Suppose I have account A and B. A bought a coin at One USD. A then creates a sell order of the coin at 1.1 USD. B buys the coin for 1.1 USD effectively increasing the price of the coin. The same process is repeated for a few times until other users start noticing the price pump. The other users then step in to buy the coin as it is rising, the price now organically goes up and our traders A and B can now sell their coins for a decent profit.
Another kind of wash trading is when A and B accounts both keep buying and selling coins to increase their trade volumes. This way both are going up the ladder on the leaderboard of a trading competition.
Many winning accounts are all actually managed by one person only. Wash trading is considered illegal in regulated markets, but cryptocurrency is not regulated, hence its used widely.
Self trade is buying and selling cryptocurrencies with the same ID/Account. Some exchanges allow it, some don’t. If it is allowed, be sure the traders are doing it.
Fee Refund through Referrals
Heard of exchanges giving away referral bonuses on fees? For instance an exchange like Coindcx, that currently offers 50% trade fee as referral bonus.
So if A refers B, and then B trades in crores to win the trading competition, A will get 50% of B’s fees as referral bonus. If both A and B accounts are managed by the same person, he or she has only paid 50% of the trade fees, while rest of us are paying full 100% fees.
Accruing losses to win competition
If you play fair, like hoping to make a profit and yet winning a trading competition, it is quite frankly not possible. High volume traders who wish to win competitions are usually buying high and selling low to reach their target.
You cannot buy a particular coin in crores for a dollar and then wait for the price to rise so you can sell it at a higher price. Traders need to get the volume so they keep trading continually sometimes incurring heavy losses in trading fees or price difference.
The idea is that if the winning price is 40000 INR, they can afford to lose even 39999 INR to win the competition and make profit.
Sometimes these traders even incur more losses, just to win the competition. The emotions like fear, greed and ego are very strong in day traders. For instance, a person who has lost 20000 in fees will want to win more than that so they will keep on trading. The fear of loss, the greed to win needs to be kept in check, but trading competitions are fairly new and quite possibly a majority of people have not gained control over their emotions.
Special Offers from Exchanges
Many exchanges have hidden offers for their high volume traders. High volume here means the trades must range in INR 50 lakhs to a few crores in a month.
A particular exchange like Koinex used to offer discounted trading fees until April. Trade for 1 Crore and your trading fees could come down to 0.1% instead of 0.25%. Some exchanges offer fee rebates, some offer straight up discounted fees.
If you are not part of this secret program, you are paying more fees than the all the toppers on the leaderboard.
Managing Several Exchange accounts
Consider this as a continuation of the discussion we left off at Wash trading. Many users have multiple accounts on exchanges. One in the name of a sibling, one in the name of a parent, one for themselves, etc.
When these traders combine the efforts of all accounts, the reward to loss ratio increases as if traded well from all accounts, they all can win these competitions. Imagine out of the top 10 accounts, 5-6 are yours, the reward is quite high and all you had to do is trade among each other.
These are Experienced Day Traders
Believe it or not, hodlers are not winning these competitions. They wouldn’t care any less. The traders participating in the competitions are actually day traders that have a lot of time at hand.
The traders have to continuously monitor the leaderboard to see where they stand in the ranking and then try and be on top. Not a lot of people can manage to continuously keep an eye on these markets and leaderboards.
Competition traders use very less capital
The day traders participating in such competitions use very less capital. While their trade volumes goes into crores, the initial capital ranges from a few thousand to a couple lakhs in INR.
They manage to use the above strategies to increase their volumes. Continuously buying and selling cryptocurrencies between two or more accounts or at market rates to reach on top of the leaderboard
Some use API based trading
Exchanges like CoinDCX provide APIs for trading. Some smart traders can make small scripts to buy or sell cryptocurrencies without even having to log into the exchange. This is the fastest way to trade and does not require you to go through the ordeal of logging in, 2FA and so on.
So there you have it, now you know what strategies the traders are following to win competitions.
What should a normal trader do?
I personally recommend staying away from such competitions if they are short lived or have very few winning spots. Chances are you will not win that competition. But when the competitions are as big as accommodating 200-500 winners, try to get in the middle range.
Trade enough to not lose money and still stay in the 11th to 100th rank. This way you take home some money and also stand a chance to make money in trading.
Wash traders will manipulate the market so keep an eye out for when the prices go down, buy the dips, wait for the traders to take it back up and then sell it. Forget the prize, you can make good money if you play your cards well in a trading competition.
Are you ready to follow these practices? Let us know in the comments below.
Update: Difference between self trade and wash trade clarified.