Most trading strategies try to predict how market prices will move. Although they’re based on some technical analyses, it is still a guessing game. The markets are fundamentally unpredictable, which is why few investors make consistent returns that way. Market-neutral strategies means that by design, the impact market movements have on them is minimal. Instead of trying to predict asset prices, these strategies make money by taking advantage of real-time market inefficiencies. So there’s little left to chance.

High-frequency arbitrage

Exchanges function by receiving orders to buy or sell a certain quantity of a certain asset, at a certain price (e.g. ‘I am willing to buy 37 Ethereum at $1,825.09’, ‘I am willing to sell 6 Ethereum at $1,825.33’). These orders constitute an ‘order book.

As there are different supply and demand on the various exchanges at a given point in time, their respective order books differ.

As a result, ‘arbitrage opportunities’ often arise. They constitute abnormal situations where one can, at the same time, buy an asset on one platform at a certain price, and sell the same asset on another platform at a higher price. For example, one could maybe buy Ethereum at $1,825.09 and sell it at $1,825.13 at the same time, pocketing a $0.04 profit per Ethereum.

This only works if:

• The trading infrastructure is fast enough so that these two actions are almost simultaneous. Microseconds to even nanoseconds apart.
• The algorithm detects and repeats this action thousands if not millions of times a day so that, summed up, the profits amount to significant returns.
• The fees paid to make these transactions are lower than the profits.

Given that the assets are almost bought and sold right away, no position is held over time. Whether the future price of these assets increases or decreases becomes irrelevant, making this strategy market-neutral.

Market making

There's an entity that is needed at all times for any market to run smoothly: market makers. They buy assets from sellers, and sell assets to buyers. Market makers provide liquidity to the markets in return for profits that come from the difference in their quoted buy price and sell price. This difference is called spread.

Most of the time, the buying demand roughly averages out the selling demand, which makes the market position of the market makers unchanged. During the time of high volatility when there is more selling demand than buying demand or vice versa, Neverless Strategies automatically hedges any net exposures & potential losses arising from fulfilling market orders.

In this strategy, Neverless Strategies generates money by operating as a market maker. The difference between the spread collected from buying and selling at the same time and the transactional cost of hedging, is the profit made.

Passive liquidity provision to decentralised trading pools

Decentralised trading pools (also known as automated market makers) need liquidity to ensure traders can buy or sell conveniently at any time. By providing liquidity to these pools, the liquidity provider earns a share of the fees paid by traders.

When obtaining and depositing these assets to the pools, one is exposed to the future price of these assets. To offset this exposure, Neverless Strategies automatically opens short positions on these assets and dynamically maintains such hedges in order to achieve market neutrality.

The difference between the fees collected from traders and the hedging cost is the profits generated from this strategy.

Funding rate arbitrage

Some of the derivative exchanges allow traders to periodically pay a ‘funding’ fee in order to use borrowed money. In other words, take leverage on their position. If one assumes the opposite position of the net open interest of these traders, they will receive this periodic funding fee.

Neverless Strategies automatically scans all markets for high funding fee opportunities and opens appropriate positions to collect such fees, while at the same time opening hedging positions to offset the market exposure and be protected from potential losses.

• Execution: a system bug can lead to erroneous strategy decisions. To prevent this, an extensive development, testing, and monitoring framework is set in place to avoid such a bug from slipping into the real-life trading environment.
• Counterparty: any of the exchanges on which Neverless Strategies run could fail. That’s why each counterparty is assessed, risk-scored, and assigned a maximum capital exposure.

Neverless runs an insurance fund to cover some of the loss in the unlikely event any of the risk materialises, but like any other form of investments, you should only invest what you can afford to lose.

Neverless Strategies has limited capacity. When the current maximum capacity is reached, you cannot invest more, but you can choose to pre-invest instead. This means that the pre-invested amount will be automatically invested without any additional action required from you. Auto-investments occur on a first-come-first-served basis once additional capacity becomes available.

If you have an insufficient balance at that time or make any withdrawals from Neverless Strategies, it will cancel your place in the queue.

You have the option to manually adjust your desired total pre-investment amount in Neverless Strategies. However, different increases in this amount at various points in time will have different priorities in the queue. For instance, if you pre-invested $500 yesterday and increased the total pre-investment amount to $800 today, the initial $500 pre-investment made yesterday will have a higher priority than the additional $300 ($800 − $500) pre-investment made today.