Pre-market trading in crypto involves buying and selling tokens before theyâre launched or listed for official trading in the market. However, cryptocurrency pre-market mechanisms extend beyond tokens. Sometimes, users may transact protocol points on these platforms to increase their token allocation for future airdrops.
How Do Crypto Pre-Markets Work?
Cryptocurrency pre-market operates as a peer-to-peer platform, enabling users to buy and sell tokens and protocol points at predetermined prices before the official listing. Trading occurs between the announcement of token allocation, token distribution, and the official launch.
During crypto pre-market trades, sellers must deposit collateral, while buyers must deposit the full value of the asset they wish to purchase. Both sellers and buyers can create an order or fill an existing order to trade. These deposits are held until after the official listing when the trade can be settled.
Types of Crypto-Pre Market Trading
The common types of pre-markets in crypto include:
Token Market
A token trading market is a platform where buyers and sellers trade crypto tokens prior to the official listing or Token Generation Event. This market allows airdrop recipients and presale investors to sell their tokens at agreed-upon prices before the tokens are officially distributed and listed for public trading.
Point Market
Cryptocurrency startups may employ point-based reward systems for usersâ activities or contributions to their platform. In such reward systems, projects may allocate tokens depending on the number of points. However, these points have no financial value until theyâre exchanged for cryptocurrency tokens.
Point markets allow users to trade projectsâ accumulated points for cryptocurrency. Similar to the token market, traders can also place deposits that are held until the trades are finalised.
Advantages of Crypto Pre-Markets
Crypto pre-market trading provides various benefits for investors and crypto enthusiasts. The advantages of crypto pre-markets include:
Price Speculation and Initial Pricing
Crypto pre-markets can help to speculate future token prices and aid price discovery. Investors can use pre-markets to assess the potential performance of tokens using price fluctuations and various external factors before the official listing and trading begin.
Accessibility
Crypto pre-markets provide an extended trading window for airdrop recipients and investors. Those whose schedules donât align with the official trading period can buy and sell tokens conveniently.
Disadvantages of Crypto Pre-Markets
The crypto pre-markets pose certain risks for traders and investors. Some of the risks include:
Low Market Participation
Crypto pre-markets experience low market participation during trading hours. This is due to the relatively small number of traders engaging in the exchange. The reduced trading activity can increase price fluctuations, which may confuse traders.
Low Volume and Liquidity
Investors may experience low trading volume and liquidity problems in crypto pre-markets. Unlike regular trading hours, pre-markets experience low trading volume due to low participation rates, which may make providing liquidity difficult.
