Pros & Cons of a Long / Short Strategy | Zeus

Before getting to the pros & cons of Zeus, let’s first understand what it means by long & short positions. If you already know, click here to skip

A long position

Pros and cons of a long position

When you expect a price to go up, due to any of the various reasons it can go up. The first thing you do is buy the asset, with the expectation of selling it at a later stage at a higher price.

Profitable trade = Buy @ $100 on date X, Sell @ $120 on date X+Y.
A 20% profit

Loss-making trade = Buy @ $100 on date X, sell @ $80 on date X+Y.
A 20% loss

When the above action is executed, the purchase price is fixed while buying the asset, thus potential loss is 100%. All that can happen from here is the price of the asset can go to $0.
On the flip side, potential profit is unlimited as the price can go up by 100%, 200%, even 500% and more.

A short position

Pros and cons of a short position

When you expect a price to go down, due to any of the various reasons it can go down. The first thing you do is buy a contract to sell the asset at the current price & buy it back again at a later date.
The expectation here is that the price would drop and you would buy it at a lesser cost than what you sold it for today.

Profitable trade = Sell @ $100 on date X, Buy @ $80 on date X+Y.
A 20% profit

Loss-making trade = Sell @ $100 on date X, Buy @ $120 on date X+Y.
A 20% loss

When the above is executed, the selling price is fixed while shorting the asset. You already know how much you’re selling for. The potential of a profit is 100% because all that can happen from here is the price of the asset can go to $0.

On the flip side, the potential for loss is unlimited, as the price can go up by 100%, 200%, or even 500% or more. You would have to pay it back to the exchange while buying the asset.

Concluding

A long position has, limited downside = 100% & unlimited upside = infinity

A short position has, unlimited downside = infinity & limited upside = 100%


Coming to Zeus

Combining the two tools of trading – Long and Short, into one strategy technically increases your ability to continue earning through dynamically changing market conditions.

It is trying to conquer the best of both worlds!  

The systems and strategies are complex as you are required to master both kinds of movements, which by nature are completely opposite.

Pros of Long / Short

Portfolio diversification.

Unlike long-only strategies, long/short investment strategy expands the potential investment universe offering the potential for a more diversified portfolio that is less correlated with the prices.

Excess returns.

Because long/short strategies rely less on upward markets, there is the potential for returns from both rising and falling prices. 2x the benefit

Better capital utilisation

As the trades happen both ways, there is a chance of a better return, its direct impact is on the efficiency of how the funds are utilised which is much better than a long-only strategy

Risks Associated With Long / Short

Huge losses while Shorting

Investing in long/short strategies presents the opportunity for significant losses due to the nature of short which has potentially “unlimited losses” as explained above.

Multiple successive losses

The possibility of multiple losses from successive trades leading up to substantial drawdown cannot be ruled out. This may happen in extremely volatile conditions.

How does Zeus handle these risks?

Dynamic stop-loss

Zeus has an inbuilt Dynamic Stop-Loss functionality for every position it takes, irrespective of long or short. These stop losses are derived from recent past movements of the coins on which the position is taken. During volatile and sideways times, it adjusts automatically, always keeping the potential losses in check.

Coin Selection

Zeus will only be operational on select few coins. Coins that are proven & have less chance of going rekt.

Portfolio as an offering, not just one coin

Zeus runs on a set of coins, not just one coin. Giving it the ability to diversify in multiple coins & multiple positions. Reducing the overall impact of a loss on a portfolio.

Dynamic Allocation

Zeus offers a portfolio, not just one coin. There has to be a decision taken for how much allocation each coin gets.
Zeus rewards the coins performing well with more allocation, and coins which are giving losses get a lesser allocation. This has proven to be our key element in protecting the portfolio protection against multiple successive losses.


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