Crypto Index Trading: Advanced Strategies With Trakx’s CTIs

Investors and traders need to do careful research and analysis to consciously invest in a crypto project. However, a new investment mode is rapidly emerging due to its efficiency, ease of access, and convenient diversification: crypto index trading. What is it? Crypto index trading involves investing in crypto index funds, diversified baskets of cryptocurrencies grouped […]

Investors and traders need to do careful research and analysis to consciously invest in a crypto project. However, a new investment mode is rapidly emerging due to its efficiency, ease of access, and convenient diversification: crypto index trading. What is it?

Crypto index trading involves investing in crypto index funds, diversified baskets of cryptocurrencies grouped together to reflect a specific cryptocurrency sector or theme. In this way, it is possible to invest in multiple assets through a single investment, and the benefits are considerable, including reduced volatility, sound risk management, easy diversification, and simplified portfolio management.

The leading platform for the creation of crypto index funds is Traxk, a French global fintech established in 2018, which is rapidly emerging for the quality and variety of financial products it offers. Indeed, with their Crypto Tradable Indices, they offer more than 25 crypto baskets differentiated by theme, risk strategy, and more.

Crypto Index Trading: How It Works?

Crypto index trading works similarly to ‘classic’ trading but is performed with crypto index funds instead of individual cryptocurrencies. How are these crypto indices composed?

Composition of Crypto Index Funds

At the heart of crypto index trading are crypto index funds, which are meticulously crafted baskets of cryptocurrencies. These funds are structured to mirror a specific cryptocurrency sector, market cap, or investment theme. The composition of these funds can vary widely, ranging from broad-based indices encompassing a diverse array of cryptocurrencies to niche indices focusing on specific sectors such as decentralized finance (DeFi), non-fungible tokens (NFTs), Proof of Stake (PoS), or more. The simplicity of investing in crypto index funds eliminates the need for investors to conduct extensive research or monitor individual cryptocurrencies actively. Instead, investors can rely on the expertise of index fund managers to make informed investment decisions on their behalf, thereby freeing up time and resources for other pursuits.

Advantages of Crypto Index Trading

Volatility Reduction

By investing in individual cryptocurrencies, the volatility of your portfolio can greatly increase, especially if a single asset performs particularly badly. In contrast, with crypto index funds, you can mitigate the impact of volatility by automatically diversifying across multiple assets simultaneously with a single investment. 

Risk Management

Crypto index trading allows you to implement an advanced and automated risk management strategy, decreasing the overall risk of your portfolio, minimizing risks, and maximizing potential and opportunities.

Easy Diversification

If you want to focus on a specific sector of cryptocurrencies, such as assets based on artificial intelligence, you can do so easily, minimizing risk through careful diversification. With a crypto index, you can diversify across multiple assets in the same category of cryptocurrencies, achieving a targeted but balanced exposure.

Simplified Portfolio Management

Manually rebalancing the portfolio every week according to the performance of cryptocurrencies can become exhausting. Well, with crypto index funds, this problem was solved in the beginning. The constituents of crypto indices are automatically rebalanced by sophisticated trading algorithms that reallocate capital periodically based on the performance of the assets.

Expertise of Index Fund Managers

The creation and management of crypto index funds and rebalancing algorithms are developed by experienced fund managers with proven expertise in finance and technology. Investors can benefit from advanced, targeted cryptocurrency strategies and baskets, which are run by experienced managers.

Auto-rebalancing

One of the main advantages of crypto index trading is the auto-rebalancing of assets through sophisticated trading algorithms. Based on the performance of individual assets, the algorithms automatically rebalance the exposure of crypto indices. This allows for passive management of one’s portfolio without the need for time-consuming manual balancing and transaction fees.

Ownership of Underlying Assets

By investing in crypto index funds, such as those of Trakx, investors are in effect owners of the assets included in the indices. In fact, the components of the index are matched 1:1 with the specific cryptocurrencies, held by the platform, on behalf of the users. This ensures that, unlike ETFs, crypto index funds own the assets underlying the index on a 1:1 basis. In ETFs, by contrast, users invest in the performance of the assets but do not own them.

Greater Liquidity 24/7

Unlike ETFs, which are regulated by stringent schedules, and trading is not guaranteed H24, crypto index funds offer liquidity and no-stop trading opportunities h24. Since indexes are traded on proprietary platforms, liquidity is always assured, and investors can sell and buy a crypto fund at any time.

How Are Crypto Indices Weighted?

To understand how crypto index funds are created and weighted, we will look at how Trakx, the leading platform for crypto index trading, is relentlessly creating its Crypto Tradable Indices (CTIs).

Capitalization Weighting

This first mode of index creation assigns each asset a specific weight determined by market capitalization. This means that cryptocurrencies with larger capitalization will make up a larger percentage of the index, while those with smaller capitalization will have a more limited impact. This can be seen in Trakx’s Top 10 Crypto CTI, in which assets with higher capitalization have a greater weight in the index.

Equal Weighting

This is a rather simple way of creating crypto indexes. In this case, the assets that make up an index are weighted equally with each other. This means that each asset in the index has equal weight and impact on the performance of the index. An example is the Bitcoin Ether 50/50 CTI, in which the index is composed equally of BTC and ETH.

Fundamentally Weighted

This methodology uses fundamental indicators, such as trading volume or adoption metrics, to determine the weight of each cryptocurrency in the index. Cryptocurrencies with stronger fundamental indicators receive higher weights in the index. This approach aims to capture cryptocurrencies with solid usage and adoption bases in the market.

An example of this weighting methodology can be found in the Growth Risk Profiled CTI.

Smart Weighted

This weighting methodology involves an advanced trading strategy based on technical analysis to balance the weight of cryptocurrencies based on momentum. This means that the weight of the cryptocurrency in the index will be significantly decreased in times of bear market, while it will be increased in times of bull market. An example of this approach can be found in the BTC Momentum CTI.

Effective Trading Strategies with Crypto Index Funds

If you are used to trading with simple single cryptocurrencies, you may find yourself bewildered in trading with crypto index funds. Although the approaches to trading are similar, certain strategies are best suited for trading crypto index funds.

Position Trading

Position traders take long-term positions in a crypto index, typically holding them for months or even years. This strategy is based on fundamental analysis, focusing on the long-term growth potential of the overall cryptocurrency market. Position traders aim to capitalize on major market trends and are less concerned with short-term price fluctuations. If you are a HODLer, this is the right strategy for you, and most crypto index funds may be suitable for your goal.

Swing Trading

Swing traders aim to profit from short- to medium-term price movements within the crypto index. They typically hold positions for a few days to weeks, capitalizing on swings in price caused by market volatility. Swing traders use both technical analysis and fundamental analysis to identify entry and exit points, looking for patterns and trends in price charts. As a swing trader, numerous crypto indices may suit you, such as the AI Index or the Growth Risk Profiled Index.

Day Trading

Day traders execute multiple trades within a single day, aiming to profit from short-term price fluctuations in the crypto index. They rely heavily on technical analysis and intra-day market trends to make rapid trading decisions. Any crypto index is suitable for a day trader.

Momentum Trading

Momentum traders focus on assets that have shown strong recent performance, expecting the trend to continue. They enter positions in the crypto index based on indicators of upward momentum and market sentiment. Momentum traders aim to ride the wave of positive price momentum, often using technical indicators such as moving averages and relative strength index (RSI) to identify entry and exit points. The BTC Momentum Index is the right choice for this trading strategy.

Mean Reversion Trading

Mean reversion traders believe that overextended price movements will eventually revert to their mean or average value. They look for opportunities to buy when prices are low relative to historical averages and sell when prices are high. Mean reversion traders use statistical analysis and technical indicators to identify potential reversals in the crypto index’s price movements. Trakx offers a Crypto Tradable Index perfect for this strategy: The Recovery CTI. This crypto index includes cryptocurrencies that are undervalued and are performing poorly lately, offering an opportunity to profit from the recovery of their uptrend.

These trading strategies cater to different trading styles, time horizons, and risk appetites, allowing traders to choose the approach that best aligns with their goals and preferences in crypto index trading. It’s essential for traders to thoroughly research and understand each strategy before implementing it and to carefully manage their risk exposure.

How to Start with Crypto Index Trading? Ultimate Guide

To start with crypto index trading, Trakx may be the choice for you. Now, let’s look at a step-by-step guide to get started on this platform and invest in Crypto Tradable Indices.

Step 1: Open an account on trakx.io

As a first step, go ahead and begin registration on trakx.io.

Step 2: Registration on the platform with email

Sign up with your email and choose a secure password.

Step 3: 2FA and required information

Enable two-factor authentication and proceed in providing any requested information.

Step 4: Fund your account

Deposit funds into your account by choosing whether to proceed with fiat currency via wire transfer or via cryptocurrency transfer.

Step 5: Start trading with crypto index funds

Start your crypto index trading experience with Crypto Tradable Indices!

Why Specifically Trakx for Crypto Index Trading?

Although there are several providers of crypto index funds, most of them are poorly regulated and secure, often located in tax havens and without stringent security controls. In addition, there are few platforms that can rely on proprietary crypto index fund technology, and only Trakx offers a wide and rich variety of indices. This platform is a French fintech founded in 2018 to make cryptocurrency investing easier, more efficient, and inclusive. We chose to create this guide with this specific platform because we found their focus on regulations and the security of users’ funds, which are stored with the most advanced security practices. In addition, their selection of Crypto Tradable Indices is the only one that can meet any kind of investor’s needs.