NFT Trading Strategies
Whether you're planning a short term flip or a long term investment, you will want to put some thought into your NFT purchases. This NFT trading guide covers a variety of strategies you can use to improve your trading as a beginner or a more experienced investor.
Buy the floor
This is a good starter strategy as it requires less money to start with and can be done without much knowledge about the project.
The "floor price" in an NFT market is the lowest price of any NFT within a certain category. This doesn't necessarily mean that you should go buy the cheapest NFT out of the entire project. Find the category you want to invest in (for example the "rare" NFTs from the project) and pick up the cheapest one. If you're not sure which category to go for, check out our guide on determining which categories to invest in.
Buying the floor works well because it's an approachable entry point for new people joining the project. Cheaper NFTs fit into a larger number of potential buyers' bankrolls and benefit from increased visibility due to markets sorting NFTs from cheapest to most expensive. As demand for a project increases, the floor price for investible categories is often quicker to rise than moderately priced NFTs.
Buy the ceiling
If you have a lot of money that you’re ready to invest into NFTs, look into buying the ceiling NFTs. Those are the rarest, most in demand, assets that fetch the highest price. If demand increases for the project, ceiling NFTs can skyrocket in price. These items also get people looking at them in the marketplace when people sort from highest to lowest price and may get promoted in various places as the prime example for that project’s NFTs.
The downside is there are fewer people with enough money to buy the NFT, making it hard to find someone to sell to at a good price. If the project declines in popularity, ceiling traders can take huge losses as liquidity dries up. This is a high risk, high reward play for those with big bankrolls.
Look for underpriced NFTs
When doing short term NFT flipping, the best trades can come from finding underpriced NFTs. This strategy does not rely on an upward market trend, working even when demand is relatively flat.
When looking through marketplace listings for underpriced NFTs, you want to find ones listed for cheaper than previous sales- not just NFTs that are listed at a price well below other sellers.
For example, many traders might look at an NFT with 10 copies where one is listed for $100 and the rest are listed for $500 and decide that $100 is a good deal. But what they may miss here is that the previous sales for the NFT are only around $20, making the $100 listing overpriced rather than underpriced. Do not judge value solely on listing prices.
The exception to factor in is the way market prices have moved since previous sales. If the overall market for a project has improved since the last sale, then you can usually infer that the value of the NFT is now higher.
Use market trends
Understanding which direction the market is trending is key in deciding when to buy and when to sell. There are a few different levels of market trends to keep an eye on, all of which can have varying effects on the value of your NFT.
Market for all NFTs
As more people get interested in NFTs, the amount of money flowing into all projects increases. A Google Trends search about NFTs should give a good indication about if interest is currently growing or declining. Keep in mind that a drop in interest on the chart doesn’t necessarily mean people are leaving the NFT space, just that fewer new people are starting to get into it.
Market for an NFT project
This is the most important trend to watch. Individual projects gain and lose popularity very quickly. Traders chase hyped projects, but can leave very quickly as trading volume drops.
The best way to judge the state of a project's market is to watch how it's trading volume and ranking relative to other NFT projects changes over time. The number of traders is also useful to watch since a project with a large number of small traders is usually more healthy than a project with the same volume coming from a small number of users. Our Resources page includes some recommendations on the best places to view and compare trading activity.
Market for a specific NFT
Individual NFTs can fluctuate in price for reasons other than changes in demand for the whole project. The NFT could be related to some person or organization that is becoming more or less popular. If the NFT has utility in a game and its usefulness changes, then expect the market price to reflect the change. Think about what sort of factors might affect an NFT you own or are analyzing and be ready to react to relevant news.
Find NFTs without many sellers
The number of sellers for an NFT impacts how hard it will be to sell. The more sellers in a market, the higher the trading volume needs to be for you to get a sale (unless you always offer the lowest price). But the difficulty of maintaining a competitive price also increases with more sellers, since there are a greater number of people changing their prices to undercut yours.
While you’re looking at the sellers for an NFT, watch how they are acting. If all the listed prices are well above recent sales with listing prices spaced out from each other, then you can generally infer that the sellers are patient and may not react if you list for a lower price than them. But if many of the prices are low and close together, that’s a sign of impatient and competitive sellers who like to undercut. Selling NFTs is a competition over buyers’ money and you will be more successful if you pick NFTs with patient sellers.
How sellers act depends a lot on the current market trend and will change over time, so keep the trend in mind when doing this analysis. Comparing sellers across categories will also not be very useful since a common NFT with a large supply will have more sellers than a rare one. Therefore, this strategy is most useful when comparing similar NFTs at the same time.
Learn and get involved
While the floor and underpricing strategies can be used without much knowledge about the project, getting involved in the community is hugely beneficial. By talking to other participants, you get a better perspective on how the project will grow and what drives demand for its NFTs. It can also open up additional opportunities to invest or participate. If you add value in some way, then you not only help the value of your NFTs, but help grow the entire NFT space.