Hello everyone! This is the Dardion team, and we would like to share how you can start trading or purchasing cryptocurrency before its official listing. There are many ways to do this, and we’ll cover the most popular methods.
On October 11, 2024, Binance launched Pre-Market, a new platform where users can buy and sell tokens before their official listing. The first asset on this platform was SCR from the Scroll layer-2 network. The platform combines Binance Spot and Binance Launchpool, giving investors the opportunity to trade assets added for farming prior to listing. However, Pre-Market is not available in all countries, and purchased tokens cannot be withdrawn until their official release.
What is Pre-Market and How Does It Work?
Pre-market on cryptocurrency exchanges allows investors to earn on tokens before their official listing. Trading is typically conducted in stablecoins, enabling users to influence the initial price of the asset. However, the pre-market price may significantly differ from the market price after listing. This mechanism often resembles futures contracts, where calculations are made in stablecoins before listing. If issues arise with the token’s release, the exchange may cancel the futures and refund the funds.
Two Different Examples:
- For example, on the OKX exchange, the pre-market operates on the principle of futures contracts, where the settlement is made in USDT before the token’s official listing. If the asset successfully goes to market, investors receive their tokens at a pre-established price. However, if the project team cancels the release or encounters serious problems, the exchange reserves the right to cancel the futures, protecting users from excessive risks.
- On Binance Pre-Market, users can trade tokens obtained through Launchpool even before their official listing on the spot market. For instance, the SCR token from the Scroll network became the first asset available for trading on this platform prior to its main release. While users can buy and sell tokens, they cannot withdraw them to other accounts or wallets until the official listing.
Big Money Flows in These Markets
In the past two months, the trading volume of pre-market futures for Hamster Kombat on the Bybit and OKX exchanges exceeded 2 million USDT, with the trading volume on OKX being five times higher than on Bybit.
Risks in Trading on Pre-Markets
Pre-markets allow investors to assess market sentiment and build strategies ahead of the token’s official launch. They offer the opportunity to buy tokens at lower prices or sell them in advance at higher prices, securing profits or hedging risks. However, such platforms may have low liquidity and the risk of contract non-performance. Decentralized pre-markets also present technological risks, including smart contract errors and oracle failures, which can lead to losses.
Example of Hedging Using Pre-Market Crypto
Suppose you expect that a new token launching on the pre-market will be successful and its price will rise. You decide to buy tokens on the pre-market to profit from their future growth.
First, you purchase 100 ZK tokens at a price of 5 USDT on the pre-market, anticipating that after the official launch, the price will increase to 10 USDT. Next, to protect yourself from a potential price drop after the official listing, you decide to open a short position on a futures exchange. You sell 100 ZK tokens on the futures market at the current market price of, say, 10 USDT.
What Could Happen?
- Scenario 1: After listing, the token price falls to 4 USDT. You lose 100 USDT on your tokens (100 tokens at 5 USDT). However, your short position yields a profit: you buy back the tokens at 4 USDT, making 600 USDT (profit from selling at 10 USDT). In the end, your losses from the main position are offset by the profit from the short sale, leaving you with a total of 500 USDT.
- Scenario 2: The token price rises to 12 USDT. You earn 700 USDT from selling the tokens on the pre-market (profit of 700 USDT from purchasing at 5 USDT), but your short position incurs a loss since you’ll have to buy back the tokens at a higher price (resulting in a 200 USDT loss). However, your overall profit remains positive as the price increase compensates for the losses from the short sale.
OTC Market: A Close Analog to Pre-Market and Its Risks
The OTC (Over-the-Counter) market serves as an alternative to traditional exchanges, where transactions are conducted directly between participants without the involvement of a centralized platform. The OTC market is often used for trading cryptocurrencies that are not officially listed on major exchanges. This market allows investors to make trades with smaller volumes and under more flexible terms.
Advantages of Pre-Market
- Early access
- Price formation
- Profit locking
- No commissions
- Participation in new projects
Disadvantages of Pre-Market
- Low liquidity
- High risks
- Lack of transparency
- Counterparty risk
- Technological risks
Conclusion
The launch of the Scroll spot pre-market on Binance is a landmark event, but it also opens the door for potential manipulation with future airdrops, as the project might distribute funds based on the current market price of the token on the pre-market, for example, $200 per account, which is not ideal.
However, trading on the pre-market allows you to gauge the sentiment of the future token listing or its prospects and its appeal to the community. Uninteresting tokens tend to be less volatile and have low trading volumes. Pre-market trading is an excellent way for traders tired of conventional futures/spot markets to try something new with a more global calculation.
