Exploring Digital Currency ETFs: Insights and Implications
Intro
In the ever-evolving landscape of finance, digital currency exchange-traded funds (ETFs) have carved out a niche that is increasingly hard to ignore. As the world of cryptocurrencies grows, these ETFs play a crucial role in enabling traditional investors to tap into the potential of digital assets without having to dive deep into the complexities of the crypto market. The concept resonates especially in today's economic climate where diversification is not just advisable, but essential.
Digital currency ETFs function as investment vehicles that hold a portfolio of cryptocurrencies, often tracking the performance of a specific index or a basket of various digital assets. This structure provides a smooth entry point for those wary of the volatile nature of the crypto market. In essence, these ETFs serve as a bridge, linking classic investment strategies with the excitement and potential returns of digital currencies.
Market Analysis
Current Trends and Market Dynamics
The market dynamics surrounding digital currency ETFs are constantly shifting. Investors are looking for innovative ways to diversify their portfolios and hedge against inflation. As of late 2023, the demand for digital assets has surged, driven by an increasing acceptance of cryptocurrencies by institutional investors and regulatory developments paving the way for broader adoption.
Some significant trends include:
- Regulatory Clarity: As governments around the world begin to establish clear frameworks for cryptocurrency, the path for ETFs is becoming more defined. This clarity can significantly influence investor confidence.
- Retail Interest: More retail investors, previously hesitant to enter the crypto space directly, are now looking at ETFs as a safer alternative to speculate on digital currencies.
- Technological Integration: The incorporation of blockchain and smart contracts in financial products is a trend that can't be ignored. These technologies could offer more transparency and efficiency in managing ETFs.
These market dynamics indicate a growing acceptance and integration of digital currencies into traditional finance, with ETFs leading the charge.
Historical Performance Comparison
When comparing the historical performance of digital currency ETFs against traditional asset classes, it's essential to recognize the volatile nature of cryptocurrencies. While many digital currency ETFs have achieved remarkable returns, they often experience substantial fluctuations in value.
For example, in 2021, several Bitcoin ETFs saw returns of over 200%, yet the crypto market also faced significant corrections which tested the resilience of investors. This volatility, however, is not necessarily a deterrent; rather, it presents potential opportunities for astute investors.
"In the world of investments, past performance may not guarantee future results, yet analyzing historical data helps shape informed decisions."
Overall, diving into the historical performance of these ETFs provides a nuanced understanding of their risks and rewards, guiding investors in their approaches.
Practical Guides
Step-by-Step Investment Strategies
Engaging with digital currency ETFs doesn't have to be a daunting task. Here’s a straightforward strategy to get started:
- Research and Understand Your Options: Before diving in, familiarize yourself with different ETFs available in the market. Look at factors like the underlying assets, fees, and performance history.
- Define Your Investment Goals: Are you looking for long-term growth, or short-term gains? Your objectives will guide your selection of specific ETFs.
- Invest: Start small and increase your investment as you become more comfortable with the asset class. Remember to consider dollar-cost averaging to mitigate risks.
- Monitor Your Investments: Keep a close eye on market trends and any news that might affect your ETFs. Staying informed is key to making timely decisions.
How to Evaluate Cryptocurrency Projects
Evaluating potential cryptocurrency assets that an ETF may be investing in is crucial for understanding your investment's underlying risks. Here are some factors to consider:
- Technology Behind the Currency: Gauge the technical fundamentals. Is there a strong development team? What is the use case of the token?
- Market Capitalization: Generally, a higher market cap indicates a more established and liquid asset.
- Community Support: A strong community backing can lead to a cryptocurrency's sustained growth and stability.
- Regulatory Compliance: Ensure that the projects abide by legal frameworks to minimize risks related to regulatory crackdowns.
As you explore the intricacies of digital currency ETFs, these guides can provide a solid foundation for making informed investment decisions.
Prelude to Digital Currency ETFs
Digital currency exchange-traded funds (ETFs) have emerged as a game-changing instrument in the realm of cryptocurrency investments. They serve as a bridge, linking the traditional financial investing world with the often volatile yet promising landscape of digital currencies. Understanding these ETFs is crucial for both seasoned investors looking for new opportunities and newcomers eager to dip their toes into the crypto waters.
Digital currency ETFs simplify the process of investing in cryptocurrencies, offering a structured and regulated way to gain exposure without the complexities of directly purchasing and storing digital assets. This adaptability significantly benefits a variety of audiences, including institutional investors and everyday traders alike.
Defining ETFs in the Context of Digital Currency
At their core, ETFs are investment funds that trade on stock exchanges, much like individual stocks. They pool together capital from various investors to buy a diverse range of assets. In the digital currency context, these ETFs can invest in cryptocurrencies themselves or derivatives of these assets.
When it comes to digital currency ETFs, a key distinction emerges: they can be classified into physical (holding the actual digital assets) or futures-based (investing in contracts that speculate on future prices). This differentiation is vital as it can greatly impact how the ETFs perform against the underlying assets and their associated risks. With such structures, digital currency ETFs allow investors to capitalize on market movements without necessitating direct ownership or management of the digital currencies.
Evolution of Cryptocurrency Investments
The world of cryptocurrency has seen dramatic evolution since Bitcoin first appeared on the scene in 2009. Initially, crypto investments were reserved for tech-savvy individuals willing to navigate a complex terrain. Fast-forward to today, and cryptocurrencies have gained notoriety and recognition, propelling the launch of various financial instruments, including ETFs.
Growth in this sector has been propelled by several factors:
- The mainstream acceptance of cryptocurrencies by businesses and consumers alike.
- Institutional interest from prominent financial players enhancing credibility.
- A growing base of retail investors driven by trends in technological innovation.
As investors take a more serious approach toward digital assets amidst the increasing volatility of traditional markets, the development of digital currency ETFs marks a significant milestone. They offer a regulated, liquid, and increasingly popular route for accessing cryptocurrencies without the operational burdens of actual crypto trading. This shift hints at a wider acceptance of cryptocurrencies as mainstream investment vehicles and offers fresh opportunities for anyone willing to explore.
Mechanics of Digital Currency ETFs
In the complex world of modern finance, understanding the mechanics behind digital currency ETFs is crucial for making informed investment decisions. These ETFs offer an innovative framework for participating in the digital currency market, combining the advantages of traditional investing with the volatility and growth potential inherent to cryptocurrencies. By breaking down the operational aspects, custodial arrangements, and market intimacy, investors can gain valuable insights into how to navigate this emerging landscape proficiently.
How Digital Currency ETFs Operate
Digital currency ETFs are built to function like traditional ETFs, but instead of investing in companies, they focus on digital currencies. When an investor buys shares of a digital currency ETF, they do not directly own the underlying assets; instead, they own a stake in the fund that tracks the performance of a specific digital currency or a basket of them. For instance, imagine the experience akin to owning a ticket to a concert; you don’t own the band, but you get to enjoy the show!
Funds usually manage this through a mechanism where they acquire and hold assets such as Bitcoin, Ethereum, or others matching their designated strategy. The net asset value (NAV) of the ETF fluctuates in response to the value of the underlying assets they hold. The intricacies unfold further with methods like full physical backing and futures contracts, which create pathways for both risk and opportunity.
Custodianship and Security Protocols
An essential consideration for digital currency ETFs is custodianship. The safekeeping of digital assets is paramount, given the historical vulnerabilities to hacks and theft. ETFs often partner with specialized custodians who have a proven track record of security. These institutions utilize a range of techniques to safeguard the assets, including multi-signature wallets and cold storage solutions.
- Cold Storage: This method involves keeping digital assets offline, drastically minimizing exposure to cyber threats.
- Multi-signature wallets: Here, multiple keys are required to authorize a transaction, adding another layer of security against unauthorized access.
These protocols instill confidence among investors, knowing that their assets are not merely sitting in a digital wallet, but safeguarded against potential breaches, much like a safety deposit box protects valued possessions.
Liquidity and Market Dynamics
Liquidity in the context of digital currency ETFs refers to how easily shares can be bought or sold in the market without causing a significant change in price. This is a critical metric, especially given the fluctuations often associated with cryptocurrencies. If an ETF is illiquid, it could be challenging to exit a position without incurring hefty losses, much like trying to sell a rare painting in a sluggish art market.
Market dynamics also come into play, where factors like trading volumes, investor sentiment, and external market influences can impact liquidity. A certain ETF may track a less popular cryptocurrency—thus leading to lower volume and higher trade costs—while more widely followed ETFs may experience the opposite, enabling smoother transactions.
Understanding liquidity can help investors align their strategies, whether being conservative or aggressive in their trading approach. Savvy investors often keep a finger on the market pulse to gauge conditions, making adjustments as necessary to optimize their holdings.
"In the financial jungle, knowing the terrain can define the difference between survival and flourishing."
By comprehending the mechanics of digital currency ETFs, investors position themselves to engage with these innovative financial instruments more effectively, enhancing their ability to seize opportunities in this unfolding investment saga.
Types of Digital Currency ETFs
Understanding the different types of digital currency ETFs is crucial for anyone considering diving into this evolving investment space. Each type serves distinct purposes, catering to various investment strategies and risk tolerances. Recognizing these differences allows investors to make informed decisions that align with their individual financial goals.
Physical vs. Futures-based ETFs
When we look at the landscape of digital currency ETFs, one of the primary distinctions lies between physical and futures-based ETFs.
- Physical ETFs directly hold the underlying digital currency, such as Bitcoin or Ethereum. Investors essentially own a piece of the actual asset. This type can be appealing because of its simplicity; if Bitcoin's price rises, so does the value of the ETF.
- On the other hand, futures-based ETFs do not directly hold currency. Instead, they invest in contracts that speculate on the future price of a cryptocurrency. This approach can introduce additional complexities, such as tracking issues and roll costs. The value might not reflect the actual asset price consistently, which could shunt an investor’s expectations.
Both have their merits, but they also carry unique risks. While the physical option may offer a more straightforward route into cryptocurrency, futures provide a means to capitalize on market dynamics, albeit with higher uncertainty.
Single Digital Asset ETFs
Single digital asset ETFs focus on one specific cryptocurrency, such as Bitcoin or Litecoin. This concentrated investment can yield significant returns if the asset performs well. However, it can also lead to heightened risk.
For example, if an ETF solely tracks Bitcoin and the asset faces regulatory scrutiny or market dips, the ETF faces a direct impact. For investors willing to bet on the potential of a particular digital currency, these ETFs present a straightforward investment vehicle. Still, one must assess market trends, technological advancements, and global acceptance for the select currency.
Diversified Crypto ETFs
Diversified crypto ETFs aim to mitigate risk by holding a basket of different digital currencies. This wider net approach enables investors to spread their risk over multiple assets, reducing the impact of a poor performer.
- Advantages: With this type of ETF, if one currency falters, others may buoy the overall performance. Such diversification could also cater to evolving trends within the cryptocurrency space. This way, an investor isn't betting the farm on the fate of a single asset.
- Disadvantages: However, some argue that diversified ETFs may dilute the potential upside. If most of the currencies in the basket underperform, the overall returns could be lackluster. Proper balance is essential here; investors must ensure they understand the various currencies and their correlations.
In summary, when navigating digital currency ETFs, understanding the nuances between physical versus futures-based, single asset versus diversified options plays a crucial role. Each provides unique opportunities while presenting distinct risks.
"Understanding different types of digital currency ETFs is not just an academic exercise; it's about aligning your investment strategy with your financial goals."
This nuanced understanding enables investors to tailor exposure and strategically manage their portfolios in the advancing world of digital finance.
Regulatory Landscape
The regulatory landscape surrounding digital currency ETFs is a complex and ever-evolving aspect that shapes how these financial instruments are understood and utilized in the market. This plays a pivotal role for investors and regulators alike since it not only establishes a framework for compliance but also ensures transparency and protection within this new realm of finance. Understanding the various regulatory elements can greatly influence investment decisions as well as the general adoption of digital currency ETFs.
Global Regulatory Perspectives
Across the globe, the regulatory stance on digital currencies and their exchange-traded funds varies significantly. Some jurisdictions have embraced the innovation, looking to create frameworks that foster growth and attract investment. For instance, countries like Canada have already approved several Bitcoin ETFs, setting a precedent that other nations are keenly observing.
Conversely, many regions are still grappling with how to define and control digital assets. In the United States, agencies like the SEC (Securities and Exchange Commission) and CFTC (Commodity Futures Trading Commission) have been cautious, frequently issuing statements that reflect uncertainty. Each region's approach can markedly impact the speed and ease with which digital currency ETFs can operate. This mismatch can lead investors to either opportunities or obstacles depending on where they look.
"The regulatory environment can make or break the potential of digital currency ETFs in any market."
Such perspectives provide a lens through which investors can assess risk and opportunity. Global regulatory dynamics are not just about compliance, but they can also dictate market trends and influence institutional adoption strategies.
Key Regulatory Bodies and Their Impact
Several key regulatory bodies are pivotal in shaping the framework for digital currency ETFs. Among them, the SEC holds significant authority in the United States, scrutinizing proposals for new funds and issuing guidance on compliance. The decisions made by the SEC can either grant the green light for innovation or impose stringent restrictions that slow progress. Recently, the increased dialogue around Bitcoin and crypto ETFs points towards a growing recognition of the need for regulatory clarity, balancing investor protection with the promotion of innovative financial products.
Outside the U.S., entities like the European Securities and Markets Authority (ESMA) and the Financial Conduct Authority (FCA) in the UK are also influential. Their guidelines often reflect more progressive views, encouraging growth while ensuring that investor interests and financial stability are safeguarded. The interplay between these bodies often leads to fragmented approaches, presenting challenges for global fund managers who wish to operate across multiple jurisdictions.
Future of Regulation in Digital Currency ETFs
Looking ahead, the regulation of digital currency ETFs seems poised for transformation. The momentum toward more inclusive and accommodating rules is gaining traction, thanks to increasing interest from institutional investors and the general public. A collaborative approach among regulators worldwide may result in standardized frameworks, helping to remove inconsistencies that have plagued the market thus far.
Furthermore, advancements in technology, such as blockchain, might influence regulatory perceptions. As these technologies demonstrate their ability to enhance transparency and security, regulatory bodies may become more inclined to adapt to the changing landscape rather than impose restrictive measures.
Investment Considerations
When navigating the complex landscape of digital currency ETFs, understanding investment considerations is paramount. Investors must be worldly aware of the unique characteristics that these financial instruments possess. As digital currency ETFs blend traditional investment approaches with the innovative world of cryptocurrencies, they shift the sands of typical risk and reward dynamics. Evaluating these considerations helps both seasoned investors and newcomers make informed decisions.
Risk Assessment in Digital Currency ETFs
Investing in digital currency ETFs requires a solid understanding of associated risks. The primary risks stem from the inherent volatility of the underlying cryptocurrencies. Prices can swing dramatically in response to market sentiments, regulatory changes, or technological advancements. A savvy investor must assess factors like:
- Market volatility: Prices can fluctuate wildly, sometimes without warning. Keeping abreast of market news is a must.
- Regulatory risk: Different jurisdictions have varying stances on digital currencies, and changes in policy can affect investments.
- Liquidity risk: Not all digital currency ETFs have the same level of market depth, which can impact the ease of buying or selling.
"The world of digital currency ETFs is not for the faint-hearted; it’s a rollercoaster that demands resilience and expertise."
By actively managing these risks, investors can better position themselves within the market, potentially increasing their returns while mitigating losses.
Performance Metrics to Analyze
To navigate the nuances of digital currency ETFs, analyzing performance metrics is crucial. Simply relying on the price movement isn’t enough. A thorough examination of several key metrics provides deeper insights into potential investment opportunities:
- Expense ratios: Understanding costs associated with the ETF, including management fees, is pivotal.
- Tracking error: This measures how well the ETF follows its underlying asset index; a low tracking error implies efficient performance.
- Volatility measures: Analyzing historical price movements can help gauge potential future performance.
When performance metrics are analyzed diligently, they provide a clearer picture of how well your investments are likely to perform over time, shaping your investment strategies.
Portfolio Diversification Through ETFs
One of the significant advantages of digital currency ETFs is the capacity for portfolio diversification. Unlike investing directly in individual cryptocurrencies, ETFs can offer a variety of digital assets within a single fund. This means that:
- Reduced risk: Diversifying helps to spread risk across multiple assets, reducing the potential impact of a poor-performing asset.
- Simplified investment management: ETFs facilitate easier management of a diverse investment portfolio without needing to track each asset individually.
- Accessibility to different strategies: Investors can tailor their approach by selecting ETFs that focus on different sectors or investment styles within the crypto-space.
Investing with the aid of ETFs simplifies the path to diversification, making it an appealing avenue for both novice and experienced investors alike.
Market Trends and Adaptations
In the rapidly shifting landscape of finance, the role of digital currency ETFs is evolving in tandem with broader trends affecting cryptocurrency investments. Understanding these trends is crucial not just for making informed investment decisions, but also for anticipating how the market might adapt to changes in technology, regulation, and user behavior. By grasping the nuances in market adaptations, investors can strategically position themselves to capitalize on opportunities and mitigate risks.
Current Trends in Digital Currency Investments
The world of digital currency has seen a whirlwind of innovation over recent years. This includes a marked rise in acceptance and use of cryptocurrencies among both consumers and institutions. As public awareness grows, trends such as hot interest in decentralized finance (DeFi) applications and growing institutional investment have become prevalent.
- Increased Adoption by Retail Investors: There’s a noticeable trend of everyday investors dipping their toes into the crypto waters, encouraged by user-friendly exchanges and the availability of educational resources.
- Growing Use of Stablecoins: Many are flocking to stablecoins as a safe harbor amidst the volatile crypto seas. These currencies, pegged to stable assets like the US dollar, are increasingly being integrated into ETF strategies.
- Rise of ESG Focus: A new wave is emerging, with crypto advocates demanding environmentally conscious mining practices and investments. ETFs that embrace green and sustainable investments are catching the eye of socially conscious investors.
This kaleidoscope of trends has implications not only for how ETFs are structured but also for the overall market behavior surrounding digital currencies.
Impact of Market Volatility on ETFs
The cryptocurrency market, known for its sharp ups and downs, brings a significant layer of complexity to ETFs. Fluctuations can happen overnight, leaving investors in a state of anxiety or exhilaration, depending on the movement's direction. Here are some major points to consider:
- Management of Volatility: Fund managers are constantly refining strategies to mitigate the impact of volatility on ETF performance. This may include leveraging risk management techniques like options trading or carefully selecting asset weights.
- Attraction for Speculators: The market's inherent volatility may not only deter conservative investors but also attract those looking for short-term gains. Speculators are drawn to products that can deliver high returns in a short time frame, fostering a more vibrant market.
- Investor Sentiment and Price Reactions: ETFs are not immune to market psychology. Fear and greed often dictate investor actions, creating short-term price swings that may not reflect long-term value.
In essence, the interplay between volatility and ETFs requires nuanced comprehension and strategizing, tailored to the investor's risk profile.
Institutional Adoption and Its Implications
As institutions steadily increase their foray into the crypto realm, the consequences reverberate throughout the digital currency markets. Their adoption resonates beyond volume— it invites credibility and stability. Several key implications include:
- Legitimization of the Sector: Institutional investments form a stamp of approval; they often bring regulatory scrutiny, which in turn enhances legitimacy and consumer confidence.
- Increased Liquidity: With institutions entering the scene, the influx of capital generally leads to improved market liquidity. This can help smooth over some of the price volatility, benefitting all investors.
- Innovative Financial Products: The appetite for digital currency products is inspiring developers to innovate at a rapid pace, creating new ETFs that may provide strategies unheard of a few years ago.
In summary, institutional interest not only shapes the direct landscape of digital currency ETFs but also molds the perceptions of the entire cryptocurrency ecosystem.
"The path of digital currency and its assets is less trodden, filled with not just opportunity but also challenges that require serious navigation."
By staying abreast of market trends and adapting accordingly, investors equip themselves to navigate the ever-changing waters of digital currency ETFs, maximizing their potential within this exciting financial frontier.
The Future of Digital Currency ETFs
The landscape of digital currency ETFs is not just a blip on the radar; it is a shifting paradigm that presents numerous opportunities and considerations for investors. As the market for cryptocurrencies matures, understanding where this sector is headed is paramount. Digital currency ETFs provide a platform that could revolutionize how individuals and institutions engage with cryptocurrencies, thus playing a pivotal role in the broader financial ecosystem.
Potential Growth Areas
The future of digital currency ETFs is likely to encompass various growth sectors. Here are some that merit attention:
- Geographical Expansion: With increasing regulatory acceptance across different regions, especially in Asia and Europe, more regions may witness the launch of digital currency ETFs. Institutions in these areas are showing increasing interest, creating fertile ground for growth.
- Institutional Involvement: As larger financial institutions and hedge funds begin to adopt digital assets, the demand for ETFs that provide exposure to cryptocurrencies is bound to rise. This could drive the creation of new products aimed at professional investors.
- Thematic ETFs: As digital assets become more sophisticated, there will likely be opportunities to invest in ETFs that focus on specific themes or sectors within the crypto space—like decentralized finance (DeFi) or non-fungible tokens (NFTs).
- Consumer Adoption: With retail investors becoming more educated about digital currencies, there may be a growing appetite for ETFs that simplify the investment process, attracting millennials and Gen Z, who are generally more tech-savvy.
This shift in consumer behavior is essential for the adoption of digital currency ETFs, potentially leading to significant increases in capital inflow into these funds.
Technological Innovations Impacting ETFs
The advancement of technology is an important factor that could shape the future of digital currency ETFs significantly. Some of the innovations to watch for include:
- Blockchain Technology: Enhanced transparency and security through blockchain could have profound implications. ETFs leveraging blockchain for settling transactions or tracking assets can offer increased efficiency and trust to investors.
- Smart Contracts: These self-executing contracts, with terms written into code, might streamline operations within ETFs. They can automate processes like dividend distribution, thus reducing administrative costs.
- Tokenization of Assets: This involves converting physical assets into digital tokens that can be traded. It opens the door for hybrid ETFs that combine traditional securities with cryptocurrencies, catering to a diverse investor base.
The convergence of these technological elements could lead to a more integrated approach to investing across asset classes, enriching the experience for investors.
Predictions and Market Sentiment
Surveying the horizon, it’s evident that market sentiment around digital currency ETFs is increasingly positive, though it exists within a volatile context. Consider the following:
- Investor Optimism: Many analysts predict robust growth, driven by improved regulatory clarity and acceptance. Consequently, retail investor interest is likely to surge.
- Volatility Management: Some market participants may seek out ETFs explicitly designed to mitigate the risks associated with cryptocurrency price fluctuations. These could include actively managed funds taking directional bets or hedging strategies.
- Diversification Strategies: Future ETFs may offer diversified exposure to multiple digital currencies, appealing to risk-averse investors. This strategy not only spreads risk but also captures the potential upside from various crypto projects.
The End
In wrapping up this exploration into digital currency ETFs, it becomes evident just how critical they are to the evolving landscape of cryptocurrency. As a financial instrument, they serve not only as a bridge between the realm of traditional investing and the innovative world of digital currency, but also provide a level of accessibility that might have previously seemed daunting. This dynamism in the market opens up avenues for varying degrees of investors—from the seasoned tactical players to those who are just dipping their toes in the waters of cryptocurrency investing.
Summarizing Key Points
One of the standout features of digital currency ETFs is their ability to simplify investment in cryptocurrencies. Instead of navigating the complexities of purchasing, storing, and securing digital assets, investors can purchase shares of an ETF, bundling multiple digital assets into a manageable portfolio. Here are some key points worth highlighting:
- Accessibility: Digital currency ETFs lower barriers to entry for typical investors who may be wary of navigating cryptocurrency exchanges directly.
- Liquid Markets: The inherent structure of ETFs promotes liquidity, making it easier for investors to enter and exit positions as market conditions dictate.
- Diversification: Investors can spread their risk by investing in a diversified set of digital assets through a single ETF, rather than single tokens which can sometimes be volatile.
"The landscape of investment options continues to grow, and digital currency ETFs represent a significant stride towards mainstream acceptance of cryptocurrencies."
The Significance of Digital Currency ETFs
In an environment marked by rapid regulatory changes and market shifts, understanding the significance of digital currency ETFs becomes paramount.
- Regulatory Advancement: As regulators increasingly consider the legitimacy and governance of cryptocurrencies, ETFs will likely play a pivotal role in shaping that narrative. They could encourage stricter compliance and monitoring, which may further bolster investor confidence.
- Educational Tool: For newcomers, ETFs provide an educational framework, simplifying the complex world of cryptocurrencies while gradually introducing the principles of investing.
- Institutional Adoption: The rise of digital currency ETFs is indicative of institutional interest, suggesting that large investors see potential in cryptocurrencies. This may lead to further investment flows in the digital currency space, strengthening its overall appeal.
- Market Stability: With assets pooled in ETFs, there lies a potential for smoothing price volatility, as large liquidity allows for a more stable trading environment.
