Binance Dual Investment is an automated investment tool that leverages the Dollar-Cost Averaging (DCA) strategy, allowing users to buy crypto assets at lower prices or sell them at higher prices. It also offers the opportunity to earn additional returns through Yield Farming. This guide will provide a detailed overview of Binance Dual Investment, exploring its mechanics, strategies, and potential benefits and drawbacks.
Key Terminology in Dual Investment
Before delving into the specifics of Dual Investment, it’s crucial to understand the key terms involved:
- Delivery Date: The date on which you receive your cryptocurrency back along with any earned interest.
- Strike Price: A predetermined fixed price that determines which currency you will be paid in.
- Settlement Price: The spot price of the underlying asset at 3 PM (UTC) on the delivery date.
- Annual Percentage Yield (APY): The interest rate you receive if your cryptocurrency is locked in the Dual Investment product for one year (including compound interest). This rate can fluctuate.
- Deposit Currency: The currency you used to subscribe to the Dual Investment product.
- Alternative Currency: The currency you will receive if the product is exercised.
Investment Strategies with Dual Investment
Dual Investment offers two main product types: “Up and Exercised” and “Down and Exercised.” Let’s explore each strategy in detail.
Up and Exercised
This strategy aims to profit from a potential price increase of the underlying asset. The return is calculated as follows:
*(Subscription Amount Strike Price) [1 + (APY% Number of Deposit Days / 365)]**
Key Considerations:
- The product is “exercised” if the Settlement Price is greater than or equal to the Strike Price. This means you will receive the alternative currency.
- The product is “not exercised” if the Settlement Price is less than the Strike Price. This means you will receive your original deposit currency plus the accrued interest.
Example:
Let’s assume User A subscribes to an “Up and Exercised” product with the following parameters:
- Deposit Currency: BUSD
- Underlying Asset: BTC
- Subscription Amount: $10,000
- Strike Price: $40,000
- APY: 4%
- Duration: 30 days
Scenario 1: BTC price is above $40,000 on the delivery date:
If the settlement price of BTC is, for instance, $42,000, the product will be exercised. User A will receive the equivalent of their initial investment in BTC at the strike price of $40,000, plus the accrued interest. This translates to approximately $10,000 / $40,000 = 0.25 BTC + interest, which is calculated as:
($10,000 $40,000) [1 + (4% * 30 / 365)] ≈ $40,032.87 / 40,000 = 0.25008 BTC or $10,032.87 worth of BTC
Since the strike price was set to 40,000 per 1 BTC and the settlement price is higher than $40,000, User A will get $10,032.87 worth of BUSD based on the $40,000 rate
Scenario 2: BTC price is below $40,000 on the delivery date:
If the settlement price of BTC is $38,000, the product is not exercised. User A receives their initial deposit of $10,000 BUSD plus the accrued interest of approximately $32.87, totaling $10,032.87 BUSD.
Down and Exercised
This strategy aims to profit from a potential price decrease of the underlying asset. The return is calculated as follows:
(Subscription Amount / Strike Price) [1 + (APY% Number of Deposit Days / 365)]
Key Considerations:
- The product is “exercised” if the Settlement Price is less than or equal to the Strike Price. This means you will receive the underlying asset (e.g., BTC).
- The product is “not exercised” if the Settlement Price is greater than the Strike Price. This means you will receive your original deposit currency plus interest.
Example:
Let’s assume User B subscribes to a “Down and Exercised” product:
- Deposit Currency: BUSD
- Underlying Asset: BTC
- Subscription Amount: $100
- Strike Price: $20,000
- APY: 4%
- Duration: 30 days
Scenario 1: BTC price is above $20,000 on the delivery date:
If the settlement price of BTC is, for instance, $22,000, the product is not exercised. User B receives their initial deposit of $100 BUSD plus the accrued interest (around 4%/12 = 0.33% monthly interest or $0.33).
Scenario 2: BTC price is below $20,000 on the delivery date:
If the settlement price of BTC is $18,000, the product is exercised. User B will receive the equivalent of their initial investment converted into BTC based on the strike price plus accrued interest of $0.33 for 30 days totaling $100.33
$100.33/ 20,000 = 0.0050165 BTC
Frequently Asked Questions (FAQ) about Dual Investment
Are the Strike Price and APY Fixed?
The strike price is fixed and will not change after subscription. However, the APY is dynamic and depends on several factors, including the strike price, remaining deposit period, and market volatility. While the APY fluctuates before subscription, it becomes locked once you subscribe to a Dual Investment product.
Can I Cancel or Withdraw My Funds After Subscribing?
No, early redemption is not available for Dual Investment products, and cancellation after subscription is not possible. You must hold the investment until the delivery date.
When Are Returns Paid Out?
Returns are paid out on the delivery date at 3 PM (UTC).
Should I Participate in Dual Investment?
Whether or not Dual Investment is suitable for you depends on your individual risk tolerance and market outlook. Consider these points:
- If the product is exercised, potential profit is capped, while unlimited losses are possible for “down and exercised” but may receive a portion of profit if the trend is up. For “Up and exercised”, if the price surpasses the target you lose potential profits compared to if you held it, but also if the price drops. You are also paid a predetermined premium
- If the product is not exercised, your capital is preserved, and you earn the agreed upon interest.
This is a simplified explanation. You should further research and fully understand the product. Before using it consider consulting a financial advisor if necessary.
