Improving a Binance Futures Relative-Value Hedge with EMA Normalization

Summary

This document revisits a multi-coin Binance futures strategy that trades each altcoin against a basket-level index of altcoin-to-BTC prices. Positions are scaled to the deviation from the cross-sectional mean, with an exchange simulation tracking margin, profits, funding charges, and fees. The original approach anchors each coin to its starting relative price, which can drift over time and create oversized positions. The proposed fix compares relative prices with an exponentially weighted moving average instead.

A parameter sweep across EMA smoothing values reports ending account value, maximum drawdown, final position size, and fees. Lower smoothing values in the reported tests produce higher ending value but also larger drawdowns and positions; higher values reduce exposure and drawdown while lowering returns. The results are historical backtests on hourly bars, so they do not establish future performance. The article also notes that live markets can update more frequently than the backtest and that execution and parameter choices need further consideration.

Key ideas

• The original strategy compares normalized altcoin-to-BTC prices with their initial levels, which can cause cumulative position growth.
• An EMA-based relative-price baseline is proposed to reduce that drift across the full currency universe.
• Target position value is proportional to each coin’s deviation from the basket mean, with trading thresholds limiting small adjustments.
• The reported parameter sweep shows a return, drawdown, exposure, and fee tradeoff as EMA smoothing changes.
• Hourly backtests cannot capture the faster updates available in live trading, and historical results do not guarantee future outcomes.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.