A better way to perform limit swaps on a DEX.
Traders moving away from trusted, cheap and user-friendly centralised trading platforms often find themselves in completely unknown territory. The blockchain, and especially Decentralised EXchanges (DEX), can be an intimidating environment that will take some time to master. To the untrained eye, popular DEXes (like Uniswap) don’t even seem to support Limit swaps… How outraging!
I will not lie; It took me 2 years before I understood how to properly perform limit swaps on DEXes using Automated Market Making (AMM).
Sure, some DEXes support limit swaps (like 1inch or SushiSwap), but what if I told you you can earn money while your limit swap is active!?
Uniswap is one of the DEXes that supports “concentrated liquidity”, meaning you can provide liquidity to a trading pair (eg. ETH-USDC) within a specified range ($1500–$2500). As long as the asset finds itself within this bound, you earn trading fees from the liquidity pool.
We can use this mechanism to our advantage by providing liquidity to a pool and specifying a value at which we want to buy (or sell). By setting the range on the lower (or upper) bound of the current price, we can supply the asset with which we want to buy (or sell). Then, we specify the price at which we want all our deposited assets to be converted to the bought asset, and as long as the price of the asset moves between that band we will receive trading fees!
The current price of a USDC/ETH pool is 1,500 USDC/ETH. You would like to sell your ETH for USDC when the price of ETH reaches 1,600 USDC/ETH. This is possible, as the price space above the spot price is denominated in the higher valued asset, ETH. You can provide ETH at a price of 1,600 USDC/ETH and have the order filled when the spot price crosses your position.
This strategy is only possible for take-profit orders and buy-limit orders, and NOT for buy-stop and stop-loss orders. You can adjust the price ranges to your liking. Taking more risk that your order might not be filled, but also getting more fees!
Want your order to be executed almost instantly? Specify a very close range (eg. 1600–1601). Want more risk and accrue more fees? Try a broader range (eg. 1550–1600)!
More on the site of Uniswap; https://docs.uniswap.org/range-orders
Doing limit swaps this way you’ve basically become a liquidity provider. Your assets are made available for traders to be used for trading, and in the process, you are getting part of the fees that those traders pay!
If you are a frequent trader this technique might save you a lot of money, so I definitely recommend experimenting with this technique to get the best returns!
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