Explore whether crypto staking aligns with Islamic law in our comprehensive guide. Learn the key considerations for compliance. Read more to find out!

Many blockchain networks' well-regarded decentralization and security benefits are highly dependent on one specific activity — 

. Staking involves contributing crypto funds to 

 (PoS) blockchains to power the transaction validation activity on them. Stakers — which can be institutional entities or individuals — lock their cryptocurrency funds on these blockchains to receive the chance to validate blocks of transactions. In return, they receive cryptocurrency rewards for their work, making crypto staking a potentially viable income source. 

Many individuals and smaller business entities who lack the technical capacity or financial reserves to act as blockchain validators can still earn staking rewards by delegating their funds to their preferred validator on a PoS blockchain.

Along with liquidity mining, yield farming and crypto coin trading, crypto staking is one of the critical ways to earn income within the blockchain industry. Many Muslim investors may wonder if crypto staking is a halal activity. In this article, we cover all the key details related to crypto staking and its status from an Islamic law perspective, in order to help Muslim investors decide whether staking cryptocurrencies is halal or haram.

In order to maintain their operations and process transaction blocks, certain blockchain platforms (those based on a PoS block validation model) require the availability of crypto funds contributed to the network. This is because these blockchains award the right to validate transaction blocks to 

 that have staked/contributed a certain amount in the network's native cryptocurrency. In the most standard implementation of PoS, the more funds a node has staked on a platform, the higher their chance of being selected as the validator of the next block. This system is used to encourage participation from validators who have 

 — that is, those genuinely interested in supporting the network and ready to contribute funds for this purpose.

Staked funds aren't given away or "donated" by validators — they remain the property of the validator, and can be reclaimed/unstaked if and when the network participant who has provided them decides to stop their block processing activities. To encourage users' participation in the block validation process, validator nodes earn staking rewards for each block they help process.

Most crypto users don't act as full validator nodes on PoS networks, as this often requires substantial minimum staking amounts and technically intricate processes to set up and run a node. However, these users can also earn income from staking crypto in various more affordable and user-friendly ways. Examples include delegating their funds to their preferred validator on blockchains supporting such delegation, or participating in a staking pool (more on that below). Via these options, users can earn a share of the total staking rewards awarded to full validator nodes.

Additionally, crypto users can earn staking rewards using specialized products on crypto trading platforms and crypto exchanges. One such product is 

, previously known as Bybit Staking, which allows you to earn staking rewards without the complexities of staking in blockchain environments. Staking products on exchanges often provides a wider choice of crypto tokens and coins than direct blockchain-based staking. This is because blockchain-based staking options are limited to native coins of PoS networks, whereas exchanges frequently offer additional assets, such as popular 

Independent staking involves setting up and running your own full validator node on a PoS blockchain network. You are responsible for technical setup procedures and are typically required to keep your node online and ready to process blocks without significant downtime.

Minimum staking requirements for independent staking are often substantial. For instance, the 

 (ETH) blockchain requires validator nodes to stake at least 32 ETH (around $80,000 as of Nov 1, 2024), while becoming a 

 (BNB) validator requires an investment of 10,000 BNB (currently around $5.7 million). Technical uptime requirements aren't child’s play, either, as validator nodes are encouraged to be online at all times, and frequent downtimes may lead to penalties in the form of slashing, whereby you lose some portion of your staked funds.

The advantage of independent staking is that you can earn substantial amounts by receiving full staking rewards from the blockchain. On PoS platforms such as Ethereum, full validators don't need to pay anyone commission fees or other charges, nor do they have to share their rewards with others. In comparison, on 

 (DPoS) blockchains, independent validators share the rewards with those who have delegated their funds to them, but typically still earn a more significant cut than each individual delegator.

For most crypto users, the technical and financial requirements of independent staking are too high. As an alternative, these users can join a staking pool to earn crypto rewards. Staking pools are platforms that facilitate the pooling of crypto funds from many users. These funds are then used to manage the actual direct staking, for instance by running validator nodes or delegating the funds to blockchain validators. By joining a staking pool, you can earn a share of staking rewards commensurate to the share of funds you’ve provided. With PoS staking pools, you only need to contribute crypto, and don't have to worry about providing computing capacity.

Understanding Islamic Finance and Crypto Staking

For many Muslim investors, adhering to the principles of Islamic finance and Shariah law is important when choosing an investment product. Islamic finance principles state that any investment should avoid interest (riba), speculation/gambling (maysir) and excessive uncertainty (gharar). It also shouldn’t involve trading assets that you don't actually own, or be related to haram activities or products, such as drugs, alcohol, pork, gambling, betting or pornography.

When evaluating whether crypto staking is a halal activity, it's important for investors to differentiate it from other popular forms of earning crypto income: liquidity mining and yield farming. 

 involves providing crypto funds to coin swap pools on 

 (DEXs). These funds are required by some DEXs — those based on the 

 (AMM) model — to have enough liquidity for swap operations. Liquidity providers earn a share of transaction fees from swaps involving the assets in the pool. In turn, 

 refers to the strategic allocation of crypto funds across various 

 (DeFi) protocols to maximize yields earned. Yield farming allocations can often involve borrowing and lending activities, often with the involvement of interest (riba).

Learn all about Bybit Islamic Account and

Unlike many yield farming activities, crypto staking doesn't usually involve riba. There is no lending or borrowing of funds with interest in crypto staking. Stakers invest their funds to support the operations and security of blockchain networks, and earn staking rewards based on the amounts they’ve contributed. These reward payouts aren't based on money that has been lent to someone with interest.

As noted above, crypto staking isn't an interest/riba–based activity. Additionally, there's no maysir, or gambling/speculation, in crypto staking: stakers earn a certain amount of relatively stable income that has little to do with speculative trading activities. The fixed and stable nature of crypto staking rewards also indicates no gharar, or excessive uncertainty. In fact, crypto staking is considered among the least 

 or speculative forms of earning income in the blockchain industry.

As such, crypto staking lacks the characteristics of the three fundamental prohibitions in Islamic finance — riba, maysir and gharar. This indicates that staking cryptocurrencies on blockchain platforms may qualify as a halal activity.

Additionally, Muslim investors need to ensure that the blockchain platform they support with staking isn't involved in haram activities, such as those related to alcohol, pork or other products forbidden in Islam.

With crypto staking being a halal activity in most cases, investors might be wondering which staking platforms and coins are the most suitable from the Islamic finance perspective. Below, we list five cryptocurrencies and their associated blockchains that are likely the optimal choices for a Muslim investor looking for staking opportunities. These five options are among the largest PoS networks in the industry. This ensures that their staking processes are among the most stable and predictable in the cryptosphere, which helps minimize the probability of gharar. 

As the largest players in the industry, these chains' native cryptocurrencies also feature some of the highest current trading volumes, which ensures a higher degree of price stability and a lower likelihood of speculation/maysir for these coins. This is also a key factor from an Islamic finance perspective, as you’ll stake and earn rewards in these platforms' respective crypto assets.

Ethereum (ETH) — specifically, its current PoS version, 

 — is the world's largest blockchain currently utilizing staking for block validation. It’s known to provide stable and highly sought-after staking rewards in its native cryptocurrency, ETH. While independent staking on the network, which requires 32 ETH collateral, is financially not viable for many crypto users, you can still join a staking pool to earn rewards.

 (SOL) is another top PoS blockchain. It typically features faster processing times and lower fees for crypto transactions than Ethereum. Unlike Ethereum, Solana doesn't impose a minimum amount to run a full validator node. In theory, that means anyone could run an independent staking operation on the blockchain. However, in practice, the competition among Solana validators for the chance to validate blocks is intense, and those with modest amounts staked in them are unlikely to win the race. The good news is that Solana, unlike Ethereum, supports stake delegation. This gives you two practical options to earn staking rewards as an ordinary user: delegate your stake to a preferred validator, or join a staking pool.

 (ADA) is a leading PoS blockchain network that exclusively uses staking pools for its block validation. This means there's no individual staking on Cardano. To participate in staking on this blockchain, you have two options: run your own pool, or, as a more practical choice for most users, join an existing one.

 scalability solutions for Ethereum. At the heart of its ecosystem is the Polygon PoS blockchain, which supports independent staking via running a validator node, as well as stake delegation. 

Currently, Polygon validators are required to stake their POL on Ethereum’s network, although the platform plans to enable full direct staking via its own chain in the near future. For most users, however, stake delegation is the best option: in this mode, you don't need to worry about technical intricacies, such as which actual network — Polygon or Ethereum — is handling your stake. Besides the stake delegation option, you can also choose an external staking pool provider for the platform's native token (POL).

 (AVAX) is another popular and well-regarded blockchain that offers staking. Somewhat smaller than most of the chains described above, Avalanche is still among the heavyweights of the blockchain industry: its native coin, AVAX, has amassed a 

 of over $10 billion (as of Nov 1, 2024). 

Avalanche offers direct independent staking: you can run your own validator node, or delegate your stake. The independent validator staking option requires collateral of 2,000 AVAX ($49,880 as of Oct 31, 2024), while the minimum requirement for stake delegation is a relatively modest 25 AVAX ($623.50). As is the case with other major PoS chains, you can also find a variety of external staking pool providers for AVAX.

The crypto market features a variety of passive income opportunities, but identifying which ones are halal isn't always straightforward. In its typical format, crypto staking can be considered a halal activity, as it doesn't involve lending or borrowing funds with interest (riba), speculative trading akin to gambling (maysir) or excessive uncertainty (gharar) often associated with some other crypto activities. As such, Muslim investors can use cryptocurrency staking, although it's always important to carefully scrutinize the actual activities of the crypto project offering staking. If these activities aren't linked to haram industries or products, staking may be one of the safest options for a crypto-minded Muslim investor. 

Disclaimer: Due to varying opinions on Shariah compliance of crypto trading, we recommend you to conduct your own further research. Please note that the posts on Bybit Learn should not be considered as fatwa. Our aim is to present information on different topics to empower readers to make informed decisions.

Intermediate

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Is Crypto Staking Halal? All You Need to Know

The Global Dollar Network, launched by leaders in fintech and digital assets including Anchorage Digital, Bullish, Kraken, Nuvei, Paxos, and Robinhood, aims to accelerate global stablecoin adoption. 

Daily Top Performer — Mask Network (MASK)

The S&P 500 fell 0.28% as investors anticipated the U.S. election and a likely 25-basis-point Fed rate cut, with major tech stocks like Tesla and Amazon leading the decline. Coindesk Indices, an index measuring broader cryptocurrency market performance was down by 1.94%, with Bitcoin and Ether dropping by 2.39% and 3.87%, respectively in the past 24 hours.

Today’s top performer is MASK, which surged 8.0% following Mask Network’s unveiling of a revamped website with enhanced features and tutorials.

Mask Network, founded in 2017, is a protocol that bridges Web 2.0 and web3, enabling users on platforms like Twitter and Facebook to access web3 features, including crypto and NFTs. It supports multiple blockchain networks, such as Ethereum, BNB Chain, Polygon, and Solana, making it chain-agnostic. Mask Network 

 an update to its website, featuring a new layout that highlights product features and a revamped tutorial page.

Check Out the Latest Prices, Charts, and Data of 

, launched by leaders in fintech and digital assets including Anchorage Digital, Bullish, Kraken, Nuvei, Paxos, and Robinhood, aims to accelerate global stablecoin adoption. The network introduces USDG, a new stablecoin issued by Paxos, compliant with Singapore’s Monetary Authority framework. It seeks to address shortcomings in current stablecoins by providing trusted, low-cost options for enterprises while rewarding network participants. The initiative encourages collaboration among custodians, exchanges, and financial institutions to innovate in global money movement. USDG is now available through various partners, with DBS Bank managing its reserves.

Yesterday, Bitcoin spot ETF flows totaled -$579.5 million, with the Grayscale Bitcoin Trust (GBTC) accounting for -$63.7 million and non-GBTC products comprising -$515.8 million.

 opens on November 7th, with a current pre-market price of $0.04. For claiming, users can visit the provided link: 

Beginner

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Global Dollar Network Launched to Boost Stablecoin Adoption with New USDG Stablecoin

Web3 gaming is a multibillion dollar industry with millions of players worldwide. Its games come in a variety of styles. Learn more here.

 has transformed its role from that of a cutting-edge financial investment to become a part of everyday life. While 

 concepts are used for a multitude of practical services, they're also a fantastic source of entertainment. Gaming is currently one of the biggest applications of web3 design. By adding blockchain features to gaming experiences, developers have been able to make games even more exciting and meaningful. Explore this guide to see why web3 gaming is so popular. 

Web3 gaming is a multibillion dollar industry with millions of players across the globe. Its games come in a variety of styles, ranging from first-person shooters to puzzle games. The main commonality among all of these games is the use of blockchain technology, such as in-game cryptos and 

“Web3 gaming” might sound pretty high-tech, but it's actually surprisingly simple. Web3 games are just standard games that incorporate blockchain technology into their designs. 

The majority of web3 games rely on two basic structures: half of each game is a standard video design that uses coding, software and hardware to create a system in which users input instructions and receive a gaming experience. The component that differentiates web3 gaming from other gaming is that of its blockchain technology. While designing their games, web3 developers also connect their systems to a blockchain, setting up multiple 

 that trigger when certain in-game actions occur. This design allows web3 games to include all sorts of blockchain mechanics. The following are a few examples:

Web3 gaming is an incredibly broad industry. Some web3 games are simple mobile apps where you tap a single button, while others are complex worlds that require hours of practice to understand. To get a good understanding of the web3 gaming landscape, it's useful to take a look at some of the most common types of games.

 gaming or DeFi gaming, investment gaming emerged as the first generation of web3 games, essentially a gamified version of standard crypto investment, with features such as 

 focus primarily on making money, but they use a game-based interface to make the process more entertaining.

 or P2E games) gamify standard behaviors. Users might tap a button or take a walk in real life, and then their action mines cryptocurrency that’s directly deposited in the player's wallet. Ever since the earliest 

, this has been one of the most popular forms of web3 gaming.

The modern generation of web3 game development is moving away from repetitive, crypto-focused designs and instead attempting to copy strategies from the traditional gaming industry. Competition-based games involve players battling each other. Though players can earn digital assets, the main goal is simply to compete with each other. Game options like 

 mimic first-person shooter competitions, while styles such as 

 gaming. This style of gaming prioritizes socializing with other gamers and building a community. Options like 

 create complex worlds in which players can create a character to role-play and interact with other characters.

The unique technology behind web3 gaming allows this industry to offer players key features they can't find anywhere else. Depending upon the game you choose, you may be able to enjoy many different fantastic game components.

For many players, the big appeal of web3 gaming is that digital assets have actual value. Using blockchain technology for in-game currency and items allows players to trade their assets both within and outside of the game. This allows the market to assign their assets a value, and players can choose to convert their items into other types of currency if they wish to.

Multiple games in the web3 space operate under the principle of decentralization. Instead of having one company run the entire system, the game is run as a collective of players and developers. Blockchain technology allows players to vote on various decisions, such as what mechanics to add to the game or what the price of an object should be. 

The majority of web3 games emphasize player ownership of in-game items. Users have direct control over the things they earn and create within the game. Not only can players buy and sell their possessions as they wish, but they can choose how to use or upgrade their digital assets.

Virtual Reality and Artificial Intelligence

Web 2.0 gaming is at the forefront of gaming design. Though virtual reality, augmented reality and artificial intelligence technology aren’t a requirement for web3 gaming, they’re far more common within the gaming sector. Many games hope to use these technologies to offer the most immersive and detailed experiences possible.

All the unique features of web3 gaming make it a particularly useful type of gaming universe. Compared to traditional games, web3 games have many special advantages.

Blockchain technology is a highly useful tool for game developers. For example, it makes it a lot simpler to manage things like player rewards and land generation, giving developers more options when designing their games. Web3 gaming systems also have the ability to run online, seamlessly interacting with a variety of 

 products and blockchain tools. Ultimately, this means that the web3 gaming community has some truly unique games that couldn't flourish with standard technology. 

Web3 ecosystems streamline the process of making a profit from games. Since it's so easy to transfer and trade assets, players can more easily convert their gaming skills into cash. Not every player may make millions, but web3 games come with many opportunities to earn money.

Since web3 games often run on principles of decentralization and transparency, they're often an ideal way to safeguard players' rights. Players usually retain control of their own data and don't have to worry about their hard-earned assets being taken away from them. Furthermore, web3 games typically value and respect the input of their communities. Blockchain technology makes it easy to ensure that community members are involved in every step of game production.

Web3 games are known for their capability to offer an immersive and seamless gaming experience. In-game transactions and crafting are directly linked to real blockchain assets, so gamers can feel particularly connected to their games. Instead of having all gaming experiences take place within a specific program, gaming experiences have real-world ramifications that can be explored through multiple blockchains and online communities. 

Though web3 gaming has many benefits, it's not always a perfect ecosystem. Here are some of the issues that web3 gamers may encounter. 

Web3 games operate with some nontraditional technology, so they can be quite confusing. Instead of simply downloading an app or launching a website, users might need to do things like 

. This adds an extra layer of complexity that may make it hard for web3 games to onboard new users.

While web3 games have the potential to offer an immersive experience, it's not a requirement. The focus on investing and profitability has led to some criticism from the gaming community. There are quite a few projects designed simply to make money, and these often struggle to engage players. Many gamers complain about web3 games with overly repetitive mechanics, cheap artwork or bland storylines. It can take some time for gamers to sort through the vast amount of web3 projects and find games that are fun to play for hours at a time. 

Both web3 gaming and traditional gaming hope to appeal to the same user base. Both styles of gaming endeavor to entertain people by appealing to their competitive and creative instincts. There’s quite a bit of overlap in the styles of games being released, and the same developers and gaming studios are working in both traditional and DeFi spaces.

However, unlike traditional games, web3 games can take advantage of newer technology. This style of gaming offers many unique aspects not found in traditional games:

Web3 gaming is still a fairly new industry, with many changes ahead. Currently, the big trend in web3 gaming is 

 models. However, online discussions suggest that users may be shifting away from simpler games. There's been a growing demand for more complex games that mimic the depth and creativity of AAA games. 

 with endless possibilities for fighting, crafting, exploring and more. In the future, web3 games may begin to prioritize entertainment and engagement over investment opportunities. You can expect to see fewer games with DeFi tie-ins, and more games that try to mimic the appeal of games like 

Web3 gaming is poised to become one of the biggest blockchain industries. 

 by 2030. With so much potential profit, web3 gaming is certainly worth exploring. Both amateur traders and professionals have the chance to earn money through different games in web3 spaces.

However, keep in mind that the days of earning thousands of dollars just by tinkering around with a new GameFi product are most likely over. With so many products on the market now, it's much harder for players to earn money by tapping a few buttons. Instead, the big investment opportunities are more likely to come from supporting the products themselves. While you might be able to make a little money by playing a game, purchasing a new game's crypto and watching it grow is likely to be a more efficient and profitable use of your time.

Web3 gaming's capacity to combine entertaining game mechanics with profitable blockchain technology has helped this industry soar. Not only are blockchain games currently worth billions of dollars, but they're also poised to capture more players than traditional online games. Investors who want to be on the cutting edge of web3 trends would certainly do well to pay close attention to web3 gaming.

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Web3 Gaming: Elevating Play to Next-Level Realities

Inverse perpetual contracts offer traders a unique way to speculate on the price movements of cryptocurrencies and are denominated in the base currency, such as BTC.

Inverse perpetual contracts offer crypto traders a unique way to speculate on the price movements of cryptocurrencies without holding the underlying asset in 

, such as USDT and USDC. These contracts are denominated in the base currency (for example, BTC) and allow traders to engage in futures markets with leveraged positions.

Currently, perpetual futures dominate the crypto derivatives market. 

 to CoinGlass, on October 31, 2024, Bitcoin’s perpetual trading volume was $18.2 billion, far exceeding the 

Inverse perpetual contracts are a type of futures contract used in crypto derivatives markets. They differ from traditional futures contracts, which often require fiat or stablecoin collateral. Inverse perpetual contracts are denominated and settled in a base cryptocurrency, such as Bitcoin (BTC) or Ether ETH). This unique structure allows crypto traders to speculate on the price of a cryptocurrency without using a stablecoin such as USDT as collateral.

For instance, a trader using an inverse BTCUSD perpetual contract can speculate on Bitcoin’s price in USD (U.S. dollars) while collateralizing their position in BTC. If the trade is profitable, the gains are paid out in Bitcoin, meaning traders can increase their Bitcoin holdings directly. 

, and allows traders to use Bitcoin and altcoins as the base currency. 

Why Crypto Traders Use Inverse Perpetual Futures Contracts

Crypto traders prefer inverse perpetual contracts for several reasons:

Inverse perpetual contracts function as a type of futures contract without an expiration date. Unlike linear futures, inverse perpetuals don’t need to be rolled over, allowing traders to hold positions indefinitely. Below, the key elements in the operation of these contracts are defined.

Key Components of Inverse Perpetual Contracts

Inverse perpetual contracts also feature an inverse pricing mechanism. For example, in a BTCUSD inverse contract, as the BTC price rises in terms of USD, fewer BTC are required to meet the contract's notional value, impacting profit-and-loss dynamics.

Key Differences Between Inverse Perpetual and Linear Perpetual Contracts

Inverse perpetual contracts differ from linear perpetual contracts in both their structure and settlement mechanisms. Below is a quick comparison:

How to Trade Inverse Perpetual Contracts on Bybit

Bybit currently supports nine (9) inverse perpetual contracts, and boasts a daily trading volume of almost $1 billion. Its exchange offers competitive fees starting at 

Bybit provides an easy-to-navigate platform for trading inverse perpetual contracts. Here’s a step-by-step guide to get started:

 for specific contract details and trading tools.

How to Calculate Profit & Loss for Inverse Perpetual Contracts

 is straightforward, but differs from the method for linear contracts. Take note of the following variables:

For long positions, P&L is calculated as follows:

For example, you buy 100 Q (for the BTCUSD pair) at an average price (E) of $10,000, and sell at $12,000 (L). 

Profit = 100 × [(1/10,000) − (1/12,000)]

For short positions, P&L is calculated as follows:

If you buy 100 Q (for the BTCUSD pair) at an average price (E) of $10,000 and sell at $8,000 (L), the P&L is calculated as follows:

Risk Exposure of Inverse Perpetual Contracts

Following are some risks associated with trading inverse crypto perpetual contracts.

Conclusion: Getting Started with Inverse Perpetual Futures

Bybit's inverse perpetual futures platform offers high liquidity and advanced trading tools for cryptocurrency derivatives. Our user-friendly interface supports efficient position management and competitive fees. However, traders must understand that these instruments carry substantial risks, including potential loss of capital through liquidation and market volatility.

 is crucial. Use stop losses and avoid over-leveraging positions. Start with small position sizes, and maintain adequate margin buffers. Never risk more than you can afford to lose. You can practice your strategies on 

 without financial risk, giving you a hands-on way to learn the platform’s features and market dynamics.

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How to Trade Inverse Perpetual Futures on Bybit

Bybit Learn

Copy Trading

Looking to add to your arsenal of trading strategies as a Bybit master copy traders? Get started with these top copy trading strategies.

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Copy trading has become more popular as new traders seek to copy an expert trader. Rather than paying expensive management fees, copy trading allows traders to place the same trades that an expert does for a small fee, which is typically around 5 to 10% of the follower’s profits.

Copy trading is also beneficial for the expert traders — also called master traders — as they earn additional income on top of the trades they’re already placing (since the master trader earns 5 to 10% of the profit that their followers make). In this article, we’ll cover three strategies for master traders to consider.

Who Is the Master in a Copy Trader Relationship?

A master trader is an expert trader who allows their trades to be copied by others and, in return, receives a profit share from the copied trades.

In order to increase the profit share from followers, the master trader will need to:

All of these goals are interconnected. Traders like to follow experts who can consistently generate profitable trades with the least amount of risk available. Therefore, traders will want to implement strategies that protect their account from large losses, while consistently finding profitable trades.

Reading the market and managing risk are critical components for expert traders to master. Here are some strategies that expert traders employ.

Strategy #1: Understand the market conditions

Have you ever noticed that sometimes your strategy will knock off several winning trades in a row — only to then take on several losing trades? This is because the market’s conditions are changing. 

 will work great in sideways markets, but it will get chewed up on strong trends. Additionally, breakouts work great when the market is volatile, but they can give up several losing trades when the volatility is quiet.

Strategies aren’t designed to work well in all conditions — and conditions change constantly. Therefore, it’s important to understand in what type of market condition your strategy will excel. 

There are two general types of market conditions, which are opposites of each other:

If volatile or trending market conditions exist, then use trend-following strategies — such as trading the breakout, or buying the dip. In trending environments, good values generally don’t last long, as the market pricing is dislocated and is trying to find a new equilibrium.

If the market is trending higher, then buy the dip or buy the breakout. If the market is trending lower, then sell the rally or sell the breakdown.

Stable, quiet, and range-bound market conditions:

Mean reversion strategies work best in range-bound markets. This means that if the market rallies, it generally won’t run away to the upside, and will revert back to an average.

Additionally, you’ll find prices spending more time moving sideways than making any progress. Buying at support and selling at resistance tend to work well, too. Breakout trades in this environment will suffer, as prices are comfortable where they are — since the buyers and sellers are relatively balanced.

Assess your strategy and manually backtest it over a variety of market conditions. During which types of market conditions does the strategy tend to perform better? In which types of conditions does the strategy tend to underperform?

When a market condition arises that isn’t optimal for your strategy, then step aside so your account doesn’t experience a large drawdown. Or better yet, change over to another strategy that’s optimized for that given market environment.

Strategy #2: Manage your risk-to-reward ratio

You’ll never know for sure if the next trade will be profitable until it closes. As a result, many traders get lured into thinking that the market is random — and that winning more than 50% of their trades is a profitable strategy.

This is not entirely true. Would you believe that a trader can have a strategy that wins 80% of the time — but still loses over the long run? How is that possible?

It happens because the trader is risking a lot to make a little. Let’s illustrate with some numbers:

 wins $100 on 80% of their trades. About 20% of the time, the market will go crazy, and they’ll lose $500 because they use a mental stop or a wide stop-loss.

 wins $300 on 45% of their trades. They have a well-defined strategy that risks $150 on each trade, and they lose slightly more than half the time, but they stick with their strategy.

Which trader is more profitable? Let’s run a simulation of 20 trades.

Wins 16 trades (20 trades × 80%) @ $100/each +1,600

Loses 4 trades (20 trades × 20%) @ $500/each −2,000

Wins 9 trades (45% × 20 trades) @ $300/each +2,700

Loses 11 trades (55% × 20 trades) @ $150/each −1,650

 risked a lot ($500 on losers) to make a little ($100 on winners). 

 managed their trades better — and stuck to their strategy.

Manage your risk-to-reward ratio by calculating what your average winning trade is and comparing it to your average losing trade.

Then insert those numbers into this formula:

Avg. loser / (avg. winner + avg. loser) = required win ratio to BREAK EVEN

 strategy, the average loser was $500 and the average winner was $100. Popping that into the formula:

 needs an 83% win ratio to simply break even — and that’s not generating any profit.

, on the other hand, has a break-even win ratio at:

 win ratio is 45% which is well above their break-even point. As a result,

As a master trader, you need to know your numbers — such as your average winning trade, average losing trade and your win ratio. When you run your numbers, does your strategy have long-term sustainability — or does it lure you due to a high win ratio?

Are you risking a lot to make a little? If so, turn it around to risk a little to make a larger reward. 

Generally speaking, trend-following strategies allow traders to earn a reward multiple times the level of their risk. That’s why following the strongest trends is a widely accepted strategy.

Strategy #3: Manage your risk levels and potential drawdowns

 are the nemesis of traders. A large drawdown digs a deep hole. When a trader is stuck in a deep hole, often times they’ll elicit risky behavior to climb out of the hole. That risky behavior begets an even deeper hole — and the trader then adds even more risk in order to climb out quickly.

This becomes a terrible feedback loop that leads to the trader’s account capital blowing up.

Therefore, it starts with the leverage utilized in any given position. A trader losing 2% on any given trade is manageable, as several losing trades in a row would keep the drawdown levels relatively small.

However, adding lofty amounts of leverage to a trade increases the potential for a devastating loss. Once the lost capital becomes large, your buying power and ability to recover are greatly diminished.

From the table above, a simple 10% drawdown in the account can be brought back to the breakeven level with a 11% gain.

However, a 33% drawdown over the collection of losing trades would require a 50% gain to simply arrive back at breakeven.

As a master trader, your income is based on generating profit for your subaccount traders. If you spend a lot of time and energy trying to recover from a large drawdown, that means that you’re not generating additional profit for your copy traders.

Therefore, it’s important to manage your drawdown levels and reduce the risk on your trades by reducing the leveraged amounts.

Increasing followers for copy trading involves consistent results with reduced leverage. That way, drawdowns are reduced so the master trader can earn profit share income from their followers.

Understanding the different market conditions — and which one your strategy caters to — will help generate more consistent results. Managing your risk-to-reward ratio to give your strategy staying power will allow you to build a track record that followers will want to copy.

Top 3 Strategies for Master Copy Traders

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