Despite the existence of this problem, the platforms came up with a compromise solution in the form of a premarket. This is the interval between closing and opening a new session, when users are offered the opportunity to sell and buy any placed assets. It makes it possible to react more promptly to the current situation, although taking into account a lower level of liquidity.
The blockchain market also offers a similar concept, but in a highly modified form, relying on the pre-trading of tokens that have not yet been issued. The editors of Incrypted figured out what a cryptocurrency premarket is, how it works, and what its advantages and disadvantages are.
What is a premarket in the cryptocurrency market?
The premarket in the cryptocurrency market is an over-the-counter way of concluding deals, which involves trading in tokens that have not yet been released, but have already been announced by the developers.
It works on the P2P transfer system . The buyer creates a request on a certain platform for readiness to purchase a future asset at the price set by him. The payment method is also specified (usually USDT, USDC or ETH). If the conditions suit the seller, he responds to the offer.
At the same time, as a guarantee of the fulfillment of the agreement, each of them blocks on the security platform the same amount and in the same tokens that will be used for the calculation.
On the day of issue, the seller is obliged to transfer the declared asset to the seller’s address within the specified time, after which payment will be automatically made to him, as well as the security deposit will be returned.
If it is impossible to complete the operation, the platform withdraws the collateral from the unscrupulous user and transfers it to the buyer as compensation for the unimplemented operation. At the same time, he also keeps personal funds.
The same principle works in the reverse direction. The seller can independently place a sales request with a similar work algorithm.
Features of the premarket in the cryptocurrency market
Unlike trading on the spot market, which begins after the listing of the token on the exchange and takes place around the clock, the premarket has its own characteristics.
First, the platform decides on the possibility of entering into agreements with unreleased assets only after the announcement of their future release.
Secondly, the period of trading on the premarket is limited. As a rule, it lasts until the actual TGE (Token generation event) of the token or ends a few days (weeks) before it. One way or another, the settlement between the buyer and the seller takes place already after this event.
At the time of writing, the most popular solution supporting this type of trading is the Whales Market decentralized protocol . Centralized exchanges are also gradually implementing a similar mechanism. For example, Bybit and KuCoin.
Advantages and disadvantages of trading on the premarket
The introduction of the premarket in the cryptocurrency market opens up additional prospects for trading. Under good circumstances, the user has the opportunity to purchase the token cheaper than on the exchange after the listing. After that, sell it and record the profit.
However, the strategy has the risk of not paying off. There is a possibility that the price in the premarket will significantly exceed the actual value in the spot market. This will cause losses on the part of the buyer.
On the other hand, low quotations are beneficial for the seller, who will be able to close the deal in the plus by buying cheaper on the exchange and selling more expensively, for example, on the Whales Market .
As a result, trading on the premarket can be unpredictable for either party. However, it can become one of the sources for determining the approximate value of the asset on the spot market at the time of listing, adjusted for low liquidity due to a lower number of offers.
In any case, such an activity is also beneficial for drophunters or participants of the sails. Having received a guaranteed allocation, they are able to respond flexibly to the market situation.
Let’s say they conclude an agreement and are guaranteed to receive the stipulated amount after TGE, if they are satisfied with the price indicated on the premarket. Otherwise, take a risk and wait for a further listing on the stock exchange.
Conclusions
Premarket is a new tool for trading in the cryptocurrency market that allows P2P deals with previously announced but not yet released tokens. At the same time, it is important to understand that it does not guarantee profit. Improper use or market volatility can cause serious losses. Therefore, before using it, you need to consider all the risks and make informed decisions.
However, the emergence of this mechanism opens up new opportunities for users in the field of cryptocurrency trading.
