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At Haru Invest, our mission is to help you make smarter financial decisions through innovative crypto experiences. Guiding our investment strategies to achieve this mission is algorithmic trading, to the practice of programming a computer to automate customized trading strategies.
We deploy three core algorithmic trading strategies to drive profits for investors:
- Arbitrage Trading that leverages the price gap between crypto exchanges
- Market Neutral Strategy based on the price stability mechanisms at crypto futures exchanges
- Spread Trading that focuses on the volatility of BTC/ETH futures contracts
Below, we will discuss each of these trading strategies in detail.
1. Arbitrage Trading
Arbitrage trading attempts to generate profits by leveraging the price gap between crypto exchanges.
Unlike the traditional equities market where stocks are listed on a single exchange, cryptocurrencies including BTC and ETH are listed on hundreds of different exchanges. Because the order book is not shared across these exchanges, there is a price gap between exchanges that Haru Invest aims to leverage for stable profits regardless of price volatility.
For example, let’s say the price of BTC is $20,000 USD at Exchange A and $19,900 USD at Exchange B. Purchasing one BTC on Exchange B at $19,900 and selling one BTC on Exchange A at $20,000 the same time generates a marginal profit.
In general, the higher BTC’s price volatility, the higher the price gap between the exchanges. This kind of trading — which requires meticulous tracking of prices across many exchanges — is difficult to do manually by humans, so an automated trading program is used.
When Haru Invest was launched in August 2019, we thought the price gap between crypto spot exchanges would run out quickly. That is why we have been developing strategies based on arbitrage trading. We are generating stable profits for investors through an advanced form of arbitrage trading between crypto futures exchanges by leveraging the price gap in the perpetual futures market and using various indicators pointing to the gap in the market.
2. Market Neutral Strategy
Haru Invest is continuously seeking to develop a new market neutral strategy.
If you own assets in the conventional financial market, you typically leave the management of them to experts and share any returns with them. Since 2019, the asset management team at Haru Invest has believed that cryptocurrency will become an asset, and asset management will be managed by experts where the returns then will be shared just like how it is done in the conventional financial market.
To this end, we have continuously developed a market neutral strategy by increasing the amount of cryptocurrency regardless of its price volatility. Such strategies have evolved and developed further in the past three years since our launch in 2019 and we are always evolving existing investment strategies and developing new ones aimed at delivering strong returns for our investors regardless of market conditions.
Cryptocurrencies are not only traded in the spot market; they are also traded in the futures market (derivative market).
Futures market trading seeks to take advantage of price stability mechanisms of futures exchanges by buying or selling at a set future date for a set price, essentially setting a purchase price at a certain point in the future and purchasing when the price of a cryptocurrency on an exchange hits that price.
Since the launch of Haru Invest, the futures market did not grow significantly until 2018. *Crypto investors generally believe crypto prices will rise, and they like to take the position toward the value going up, also known as a long position. Contracts are prerequisites for the growth of exchanges and overall market volume, however, the inclination of most investors to take a long position ((vs. a short position) hinders the growth of the market.
To address this imbalance, two systems unique only to crypto futures exchanges were recently introduced, enabling the crypto futures market to grow rapidly.
Starting with Bitmex, a number of crypto futures exchanges saw rapid growth and there are now more than 10 major crypto futures exchanges including Binance Futures, FTX, OKEX, Bybit, and Huobi Futures.
These crypto futures exchanges have some distinct characteristics from the traditional financial market:
- There are a number of futures exchanges trading cryptocurrencies such as BTC and ETH and the order book is not shared.
- New systems were introduced which didn’t exist in the traditional financial market such as Perpetual Futures and Funding Fee System
- Perpetual Futures: The futures contracts in the traditional financial sector are divided into 1 month, 3 months, 6 months, and 12 months, as futures are about predicting the value at a particular time in the future. But all of these futures contracts were consolidated into a single type called “Perpetual Futures” to increase volume.
- Funding Fee System: Bitmex’s funding fee is structured to pay at least 0.01% of the volume of the long position held every 8 hours to the short position holders. Since the futures market is led by crypto holders, there are far more cases in which a long position holder pays a funding fee to a short position holder. After the introduction of the funding fee system, the crypto futures market started to turn into a game-like market where the participants predict 8 hours later values.
Some rightly predict the value will rise after 1 month, 3 months, 6 months, and 12 months, but they might think that the value may not go up or down for at least 8 hours. The introduction of the funding fee system ultimately enables those who took a short position to earn returns as long as the price falls at the 8-hour mark when the funding fee is paid, and even if the price stays the same, they still generate profit from the funding fee.
The unique characteristics of the crypto futures market created a new kind of inefficiency that did not previously exist in the traditional financial market.
And by using this mechanism in the crypto futures market, Haru Invest can help investors generate profits by using a hedging strategy that uses a futures contracts mechanism to hedge a spot market.
- First, take a short position in the crypto futures market.
- Then, hedge the same amount on the crypto spot exchange.
- In this scenario, if the price falls, you will earn from the short position, but there will be a loss in the spot market. If the price goes up, you will have a loss due to the short position, but a profit in the spot market.
- By maintaining a zero-sum between the two positions, the funding fee as profits can be generated.
In other words, this strategy is using perpetual futures’ funding fee to generate profits by hedging the risks of future contracts in the spot market.
3. Spread Trading
Haru Invest’s third core investment strategy focuses on calendar spread trading that leverages the volatility of BTC/ETH futures contracts.
What is calendar spread trading?
Option prices are set differently depending on the maturity and strike price. Calendar spread trading is buying and selling options with different strike prices at the same maturity or buying and selling options with different maturity at the same strike price.
Earlier, we described perpetual futures as one of the characteristics of the crypto futures market. But the crypto exchange market still has contracts with different maturity.
And similar to the spot market, the price of futures contracts is different because the order book of each exchange is all different and therefore there is a price gap between options with different maturity. This is market inefficiency in futures trading, in which the spread trading strategy is deployed to take the advantage of.
At Haru Invest, we do NOT use a strategy based on Borrow & Lending
Since its launch in 2019, Haru Invest trading strategy has been guided by algorithmic trading, not borrowing and lending. Algorithmic trading features the following advantages over borrow and lending-based structures:
- High Earn Rates for BTC and ETH: In general, there is a higher demand for depositing BTC and ETH than there is for borrowing them. Conversely in the case of stablecoins, the demand is higher on the borrowing side. This is why interest rates for BTC and ETH are low while interest rates for stablecoins are usually high. However, a high earn rate is possible for BTC and ETH if algorithmic trading can be used.
- No Limit on Deposits: Under the borrowing and lending structure, it is not easy to pay out earnings to customers if borrowings are not substantially taken. However, in the algorithmic trading structure, as long as there is sufficient capacity for strategy operation, the amount of deposit per individual is not limited because profits can be generated as much as the amount of deposit.
- Low Possibility of Bank Run (in lock-ups): In the algorithmic trading structure, assets are managed for a fixed term (lock-up period) once the deposit is made. Since the assets are managed for a fixed term, stability can be maintained even if a lot of withdrawals are made when the fixed term ends.
How Haru Invest Operates
We manage our assets ourselves and we do NOT leave them to other platforms to manage.
Haru Invest manages 100% of our customer’s deposits with our in-house trading team and global asset management partners. We have two in-house trading teams which are independent of each other. Additionally, Haru Invest works with more than 10 global asset management partners who satisfy our strict conditions for a partnership to lower the risk based on a portfolio strategy by distributing assets across various strategies.
Haru Invest’s In-house Trading Team
At Haru invest, a stable operation is possible thanks to our in-house trading team. Fund ratios fluctuate from time to time, but more than half of assets are always managed by the in-house trading team.
The in-house trading team started asset management based on algorithmic trading in 2019 and has continuously engaged in developing new investment strategies. Our team has the know-how on how to generate profits under various changing market circumstances and environments. This allows our team to operate in a stable manner, and devise and verify new investment strategies.
Our in-house trading team understands investment strategies used by the global asset management partners for a distribution purpose to lower risk and has a good level of knowledge to check whether their strategies have been well implemented.
Haru Invest and Our Asset Management Partners
Haru Invest strictly evaluates our global asset management partner candidates based on several criteria, including their organization structure, operation strategy, and proven record of more than 18 months of asset management, and we manage our partners thoroughly after the partnership selection as well.
In particular, we take a closer look at their operation strategies. We never select teams with “buy low/sell high” type of strategies. Our partners consist of teams who conduct low-risk and high-frequency trading by utilizing market inefficiency and it is important to prove that their strategies are not affected by the price volatility of BTC and ETH.
Furthermore, we take various due diligence for mutual trust building and check the stability by conducting a test with a small amount.
Only those candidates who made the final cut will be selected as our partners.
