Main conclusions
Binance's new rebalancing bot allows you to easily and automatically adjust cryptocurrency portfolios to maintain your desired asset allocation.
Rebalancing is necessary to manage risk, trade based on investment objectives, and potentially increase profits by selling overvalued assets and buying undervalued ones.
A rebalancing bot can be used to make adjustments at certain intervals or when the relationship between selected coins changes.
Managing a diversified cryptocurrency portfolio can be challenging, especially for those new to the world of digital finance. One of the challenges investors face in the fast-paced crypto space is the need to rebalance from time to time. Rebalancing is an adjustment of assets in a portfolio to maintain the desired balance between them. The purchase and sale of certain assets is conducted in such a way as to maintain a particular combination of tokens in the portfolio, taking into account the investor’s risk tolerance and investment goals.
This is where Binance's new rebalancing bot comes in. This tool allows you to easily and automatically adjust portfolios at fixed intervals or whenever the coin ratio deviates from a predetermined value. In this blog post, we'll cover the benefits of the rebalancing bot on Binance, how to access it, and how to adjust your portfolio based on time frame or token ratio.
Why is rebalancing needed?
Rebalancing is necessary when there is volatility in the cryptocurrency market and the relative value of certain cryptocurrencies in a portfolio changes. For example, if the value of Bitcoin increases significantly, the portfolio will be overweighted in BTC and underweighted in other cryptocurrencies. In this case, as part of the rebalancing, you should sell some Bitcoin and buy other cryptocurrencies to restore the desired distribution.
Rebalancing is important for several reasons. First, it helps manage risk by ensuring portfolio diversification and preventing excessive concentration on one cryptocurrency. Secondly, it helps you stay on track with your original investment strategy and goals. Third, rebalancing can help increase profits by selling overvalued assets and buying undervalued ones.
In general, rebalancing a cryptocurrency portfolio is necessary to optimize it in terms of risk and return. People with a systematic approach to trading should rebalance regularly, carefully assessing market conditions and their investment goals.
Bot rebalances from Binance
At Binance, we understand that many of our users want to keep up with changes in the dynamic cryptocurrency market, but not everyone can actively trade using the many tools available in the Binance ecosystem. That's why we created the rebalancing bot: to give users the ability to easily adjust their portfolios on an accountable and trusted platform.
To access the Binance rebalancing bot, you need to create an account and log in. Once logged in, go to the trading strategies page and select Rebalancing Bot.
The rebalancing bot automatically adjusts your positions in the selected token pairs. This strategy maintains the same ratio of asset values at specified intervals or based on thresholds by buying at a lower price and selling at a higher price. You can use the auto-balancing feature, which will trigger either when the ratio of certain coins changes, or at specified intervals.
Rebalancing by coin ratio
In this mode, the bot will only rebalance if the change in the ratio of any assets exceeds a set threshold: 0.5%, 1%, 2% or 5%.
Consider the following scenario:
Portfolio: BTC and BNB.
Time: 1 minute (default).
Coin ratio: 1%.
Investment amount: 800 USDT.
Initial coin distribution: 50%.
In other words, our hypothetical portfolio initially contains 400 USDT in BTC and 400 USDT in BNB. The system will automatically calculate the proportion of each token in the portfolio, which in this case is 50% for each asset.
Let's imagine that after the market movement, the value of BTC and BNB in the portfolio becomes 450 USDT and 550 USDT, respectively. The total portfolio value is now 1,000 USDT and the coin allocation has changed to 45% BTC and 55% BNB. The difference in the ratio exceeds the set level of 1%, so automatic rebalancing will work.
To restore the original allocation, the bot will rebalance the positions by buying 5% BTC and selling 5% BNB:
BTC cost = 450 + (1000 * 5%) = 500 USDT
BNB Value = 550 - (1000 * 5%) = 500 USDT
After rebalancing, the portfolio will contain 500 USDT in BTC and 500 USDT in BNB. As a result, the ratio will be restored to 50%.
Balancing based on the ratio of tokens can be beneficial for those who want to ensure diversification and an even distribution of coins in the portfolio. However, you may miss out on some opportunities if some coins consistently perform better than others.
Rebalancing over time
With a time-based approach, the system will check for the need to rebalance at fixed intervals. You can set the interval to 30 minutes, 1 hour, 4 hours, 8 hours, 12 hours, 1 day, 3 days, 7 days, 14 days, or 28 days.
Consider the following scenario:
Portfolio: BTC and BNB.
Time: 7 days.
Coin ratio: 0.5% (default).
Investment amount: 800 USDT.
Initial coin distribution: 50%.
Our hypothetical portfolio contains 400 USDT in BTC and 400 USDT in BNB. The bot is configured to automatically calculate the ratio of tokens in the portfolio every 7 days. If the calculation shows that the share of one of the assets has deviated from the original value by more than 0.5%, rebalancing is triggered. After this, the rebalancing process does not differ from that described earlier.
The benefit of time rebalancing is that it can be used to adapt to the current level of volatility in the cryptocurrency market. When asset prices are relatively stable, a portfolio can maintain balance with infrequent adjustments, while in turbulent times, shorter intervals are appropriate given volatility. However, if the rebalancing period is too long, it may result in an under-diversified portfolio.
Rebalancing bot vs. auto investing
It is important to understand that the rebalancing bot is different from Binance's auto-investing feature. Auto investing allows you to make recurring investments by automating regular purchases of predetermined assets. This function is not intended for portfolio adjustments. A rebalancing bot, on the other hand, allows investors to diversify risk and automatically rebalance their assets by buying and selling them as needed.
Commissions in the rebalancing bot
Rebalancing bot users can receive a 25% discount on standard trading fees when paying in BNB.
To do this, the standard trading commission is first paid from the rebalancing bot's wallet, and then part of the commission is returned to the spot wallet. To check your BNB fee refund history, go to Orders - Rebalance Bot - Fee Return History.
Please note that you must have sufficient BNB funds in your spot wallet to pay trading fees. Otherwise, you will not receive the 25% trading commission rebate. For more details, see How to Pay Fees in BNB with a 25% Discount.
Introduction to Trading Strategies on Binance
In addition to the rebalancing bot and auto investing, Binance offers other automated trading strategies such as grid and futures spot trading. The Grid Spot Trading Bot automates the placement of orders in the spot market at specified time intervals within a customized price range. A grid futures trading bot works similarly, but is used in the futures market. Both strategies aim to profit from small changes in price and work best in a volatile market where the price fluctuates within a certain range.
Conclusion
The Binance Rebalancing Bot is a convenient solution for those who want to manage their cryptocurrency portfolio with minimal effort. This tool allows you to automatically adjust your portfolio at set intervals or when the coin ratio deviates from a set level, making it easier to diversify your assets. Regular rebalancing can help you increase your returns while maintaining your original investment strategy and goals by optimizing your portfolio for risk and return.
Please note that the rebalancing bot uses trading commissions for spot trading. There are no additional fees. A detailed history of commission deductions in BNB can be found in the Commission Refund History section.
Additional Information
(FAQ) What is a rebalancing bot and other frequently asked questions
(FAQ) What is spot grid trading and how does it work
(Blog) Step-by-Step Guide to Grid Trading on Binance Futures
(Disclaimer) Trading Strategies Disclaimer
Risk warning. Binance does not evaluate the quality of any portfolio or rebalance bot performance and makes no representations or warranties that the rebalance bot strategy will perform as expected or be profitable. All risks associated with the rebalancing bot are borne by the user. Transactions performed using the rebalancing bot may incur a trading fee. Before deciding to use a rebalancing bot and adjusting the appropriate settings, evaluate the impact of trading commissions on the performance of the relevant portfolio. Binance is not responsible for any losses incurred in connection with any rebalancing bot strategy.
