volatility in a trading pair that <strong>liquidity providers</strong> experience. This loss could also represent the amount of money <strong>someone would have</strong> if they would have continued to hold on to their assets rather than provided liquidity.</p>\n<p><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-liquidity-pool/">Liquidity pools</strong></a> usually have two assets that might <strong>differ in terms of stability</strong>. For example, one asset might be DAI, a <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-stablecoin/">stablecoin, and the other could be <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/buy-ethereum-eth/">Ethereum (ETH)</strong></a>, a more volatile asset. Now, let&rsquo;s say that <strong>a provider has to offer equal levels of liquidity</strong> for ETH and DAI but the price of ETH goes up all of a sudden.</p>\n<p>Since the price of ETH in the liquidity pool <strong>no longer reflects the reality</strong>, this creates an appealing opportunity for arbitrage. Thus, other traders will buy ETH at a discounted price until the ratio of DAI to ETH is balanced again and it is ensured that it will stay this way.</p>\n<p>After that, <strong>a liquidity provider</strong> will probably have a bigger amount of DAI and a smaller amount of ETH. Impermanent loss shows the difference between the current value of a provider's assets and <strong>the value they would have</strong> if these assets remained in an exchange for a longer period of time. Note that loss becomes permanent only when a provider decides to remove their liquidity.</p>","level":"easy","meta_title":"What is Impermanent Loss? 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It allows investors to bet on the price of a stock and, if the bets are correct, they profit from it. Many <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/best-cryptocurrency-exchange/">exchanges in the cryptocurrency world</strong></strong></a> started using options trading as well. While cryptocurrency trading differs greatly from traditional stock market trading, several principles and trading tools are applicable to both markets.</p>\n<p>In-the-money (ITM) and out-of-the-money (OTM) are two of the world's <strong>most prominent trading processes</strong> that indicate the type of position an investor takes regarding an asset's or <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-cryptocurrency/">cryptocurrency's present price. Options trading allows investors to speculate on an asset's future price and benefit if their forecast is true.</p>\n<p>The ITM strategy is when <strong>an investor bets money on a price that has already been surpassed by the asset</strong>. When a trader wishes to hedge their funds against a position, he will utilize this sort of options trading. ITM options trading mechanism is beneficial because it carries time value and <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-intrinsic-value/">intrinsic value</strong></strong></a> meaning that it&rsquo;s a less risky investment because it witnesses smaller price fluctuations.</p>\n<p>The OTM strategy is similar to the ITM strategy but the difference is that <strong>an investor stakes money on a price that the asset hasn't reached yet</strong>. This means that OTM investments only have time value without intrinsic value. For this reason, OTM investments mostly end up being cheaper than ITM investments. <strong>OTM</strong> options trading is usually chosen by investors that have a strong hunch that the asset&rsquo;s price will go up in the future.</p>\n<p>Options trading can be very profitable for crypto investors because of the highly <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-volatility/">volatile nature</strong></a> <strong>of cryptocurrency projects</strong> and large price fluctuations. <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/buy-bitcoin-btc/">Bitcoin (BTC)</strong></a> and <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/buy-ethereum-eth/">Ethereum (ETH)</strong></a> are the two cryptocurrencies that are perfect for options trading because they are <strong>extremely volatile</strong>.</p>","level":"medium","meta_title":"What is In-the-Money/Out-of-the-Money? Definition & Meaning | Crypto Wiki","meta_description":"In-the-Money/Out-of-the-Money meaning: In-the-Money/Out-of-the-Money - In-the-Money / Out-of-the-Money – options trading mechanisms that allow investors to bet on the future price of an asset or cryptocurrency and take profit if they are correct.","meta_keywords":null,"language":"en","created_at":"2022-03-17T14:19:40.000000Z","updated_at":"2022-05-13T14:32:23.000000Z","preview_url":"https://www.bitdegree.org/crypto/learn/crypto-terms/what-is-in-the-money-out-of-the-money"},"prevSection":{"id":997,"original_id":null,"author_id":40,"translator_id":null,"title":"What is High-Frequency Trading (HFT)?","slug":"what-is-high-frequency-trading-hft","section":"H","keyword":"High-Frequency Trading (HFT)","status":"published","definition":"an algorithmic trading method that processes a large number of orders in an instant.","content":"<p>It&rsquo;s a sort of algorithmic trading.&nbsp;The trading method holds financial information and <strong>high-tech electronic trading devices</strong> to research markets as well as process a large number of orders quickly.</p>\n<p>It&rsquo;s anticipated that HFT algorithms add up to a significant portion of the worldwide market trading volume. Owing to the difficulty of these algorithms, this trading approach is often only available to huge financial firms.</p>\n<p>Also, in order to gain small amounts that eventually add up to a decent amount of profit, high-frequency traders try to move in and out of trades as quickly as possible. Usually, those who complete their orders faster have an advantage over those that are slower. So, execution speed is important.</p>\n<p>Because of the favorable market impact, several exchanges incentivize HFT by paying refunds or reducing costs to HFT suppliers. HFT can enhance market settings by supplying a consistent flow of liquidity and even eliminating <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-bid-ask-spread/">bid-ask spreads</strong></a>.</p>\n<p>However, this type of trading can also increase <strong>market volatility</strong>. This is because there is no need for any human engagement. The algorithms are designed to have an instant decision-making feature.</p>\n<p>It&rsquo;s difficult for traders to benefit from the liquidity because it can appear and disappear in a matter of seconds. This is why high-frequency trading is considered to be a controversial trading technique.</p>","level":"easy","meta_title":"What is High-Frequency Trading (HFT)? 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Handbook Cover Page
Crypto Terms: Letter I

What is Impermanent Loss?

Impermanent Loss MEANING:
Impermanent Loss - a temporary loss of the funds of a liquidity provider that occurs due to the volatility in a trading pair.
Easy
1 minute

Let's find out Impermanent Loss meaning, definition in crypto, what is Impermanent Loss, and all other detailed facts.

Impermanent loss is a temporary loss of funds due to volatility in a trading pair that liquidity providers experience. This loss could also represent the amount of money someone would have if they would have continued to hold on to their assets rather than provided liquidity.

Liquidity pools usually have two assets that might differ in terms of stability. For example, one asset might be DAI, a stablecoin, and the other could be Ethereum (ETH), a more volatile asset. Now, let’s say that a provider has to offer equal levels of liquidity for ETH and DAI but the price of ETH goes up all of a sudden.

Since the price of ETH in the liquidity pool no longer reflects the reality, this creates an appealing opportunity for arbitrage. Thus, other traders will buy ETH at a discounted price until the ratio of DAI to ETH is balanced again and it is ensured that it will stay this way.

After that, a liquidity provider will probably have a bigger amount of DAI and a smaller amount of ETH. Impermanent loss shows the difference between the current value of a provider's assets and the value they would have if these assets remained in an exchange for a longer period of time. Note that loss becomes permanent only when a provider decides to remove their liquidity.
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