Trading on traditional financial markets has a number of restrictions absent in the blockchain industry. Especially when it comes to the operating hours of traditional exchanges. They set a fixed schedule during which deals can be made, greatly limiting traders' opportunities.
Despite the existence of this problem, platforms have come up with a compromise solution in the form of a premarket. This is the interval between the closing and opening of a new session when users are offered the opportunity to sell and buy any listed assets. It allows for a more rapid response to the current situation, albeit with a lower level of liquidity.
The blockchain market also offers a similar concept, but in a significantly altered form, focusing on the preliminary trading of tokens that have not yet been issued.
What is the premarket in the cryptocurrency market?
The premarket in the cryptocurrency market is an over-the-counter method of concluding transactions, involving the trading of tokens whose issuance has not yet occurred but has already been announced by the developers.
It operates on a P2P transfer system. The buyer creates a request on a specific platform indicating their readiness to purchase the future asset at a price set by them. The payment method is also specified (usually USDT, $USDC or $ETH ). If the seller is satisfied with the conditions, they respond to the offer.
In this case, as a guarantee of fulfilling the agreement, each of them blocks collateral on the platform for the same amount and in the same tokens that will be used for settlement.
On the day of release, the seller is obliged to transfer the declared asset to the buyer's address within the established time frame, after which payment will be automatically made, and the deposit will be returned.
In case of the inability to fully execute the deal, the platform withdraws the collateral from the unscrupulous user and transfers it to the buyer as compensation for the unrealized transaction. At the same time, they also retain their personal funds.
The same principle works in the opposite direction. The seller can independently place a sale request using a similar working algorithm.
Characteristics of the premarket in the cryptocurrency market
Unlike trading in the spot market, which begins after the token listing on the exchange and occurs around the clock, the premarket has its own characteristics.
Firstly, the platform decides on the possibility of concluding deals with unissued assets only after the announcement of their future release.
Secondly, the trading period on the premarket is limited. Typically, it lasts until the actual TGE (Token Generation Event) of the token or ends several days (weeks) before it. In any case, the settlement between the buyer and seller occurs after this event.
At the time of writing, the most popular solution supporting this type of trading is the decentralized protocol Whales Market. Centralized exchanges are also gradually implementing such mechanisms. 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 favorable circumstances, the user has the opportunity to purchase a token cheaper than on the exchange after listing. After that, they can sell it and secure a profit.
However, the strategy carries the risk of being unprofitable. There is a chance that the price on the premarket will significantly exceed the actual price in the spot market. This will lead to losses for the buyer.
On the other hand, low quotes are advantageous for the seller, who can close the deal profitably by buying cheaper on the exchange and selling at a higher price, for example, on Whales Market.
As a result, trading on the premarket can be unpredictable for either party. Nevertheless, it can become one of the sources for determining the approximate value of the asset in the spot market at the moment of listing, taking into account the low liquidity due to the smaller number of offers.
In any case, such activities are also profitable for drop hunters or sale participants. Having received a guaranteed allocation, they are able to react flexibly to the market situation.
Suppose to conclude a deal and guarantee the agreed amount after the TGE, if the price specified on the premarket satisfies them. Otherwise, take the risk and wait for further listing on the exchange.
Conclusions
The premarket is a new tool for trading in the cryptocurrency market, allowing for P2P transactions with previously announced but not yet issued tokens. It is important to understand that it does not guarantee profit. Misuse or market volatility can lead to significant losses. Therefore, all risks should be considered, and well-informed decisions should be made before using it.
However, the emergence of this mechanism opens up new opportunities for users in the field of cryptocurrency trading.
