Today, I will share a simple arbitrage strategy that has been flat in the recent bear market and has an annualized return of over 100%. I will also provide step-by-step instructions and operation tools.

Today's protagonist is funding rate arbitrage & leveraged contract arbitrage. In the current market, there is a lack of liquidity. It is impossible for everything to rise at the same time. Many hot money and dealers will short-sell some altcoins everywhere, causing the funding rate to soar abnormally. At this time, if there is a difference in contract fees across exchanges or a difference between leverage interest and contract fees, there is a profit to be arbitraged. Although it is impossible to increase tenfold like a local dog, it is still possible to seek a stable cash flow and be a landlord in a bear market!

1. Differences in fees across exchanges

How much spread can be obtained for each target per 10,000 u, and the handling fee is taken as an example of $Cyber ​​in the figure.

The fee for going long on Binance is -0.4836%, and the fee for shorting on Huobi is 0.01%. The interest rate difference between the two is 0.4936% (absolute value). Therefore, the profit per 10,000 u is 49.36u. After deducting the handling fee of 8u on both exchanges, the total profit is 41.36u. Assuming that the abnormal fee continues for a whole day, and a total of three fees are charged, the total profit is 41.36 + 49.36 + 41.36. The handling fee for each opening and closing order is calculated once, so there is a 1% profit per day, and the annualized rate of return is 365%. This is the most basic logic of funding rate arbitrage.

2. Funding rate arbitrage considerations

However, the above assumptions are all ideal situations. In actual operation, we still need to pay attention to the following points:

- Continuity of funding rates. Usually, abnormal rates will occur when positions rise sharply in a unilateral market. For most targets, abnormal rates may only last for 1 to 2 times before converging. Therefore, we need to see whether the continuity of the rates in the past 7 days is in the same direction.

- Whether the interest rate spread offsets the handling fee. If the interest rate spread of a single arbitrage cannot offset the handling fee (note that the opening and closing orders need to be calculated once each), the funding rate needs to be arbitraged for more than 2 to 3 times to generate positive returns. Therefore, never place an order if the interest rate spread is too low.

- Arbitrage the price difference between the two parties. Simply put, we hope that the long side can open at a low point and the short side can open at a high point, but most of the time the price difference of exchanges with fee differences will be the opposite. Therefore, it would be better if there were arbitrage tools to assist. It will also be mentioned later that be careful not to earn the interest rate difference and lose the price difference.

3. Leveraged Contract Arbitrage

Discover the spreads of leveraged spot and futures rates across exchanges.

You will find that the standards are similar to those of funding rate arbitrage, mainly the options with abnormal fees. At the same time, because each exchange usually has a leverage interest-free quota and the interest rate is relatively low, the annualized rate of return is higher than the pure funding rate spread. We can also pay attention to the accumulated rates and returns for three days to see whether their fees are continuous. However, one thing to note is that because leverage is buying and selling spot, the handling fee will be higher than that of the contract, and the leverage multiple that can be made will be less than that of the contract. If small-capital users want to participate, it will be more friendly to do cross-exchange fee arbitrage, and the spread also needs to be paid attention to like funding rate arbitrage.

4. After introducing the basic logic, let me share a useful tool for retail investors to lie flat

AICoin：aicoin.com

Currently, AICoin supports users to connect to the API for free to conduct cross-exchange funding rate arbitrage and leveraged contract arbitrage between Binance and OKX. Just click on the Dashboard to find out which targets currently have favorable spreads, whether the three-day annualized rate is continuous, what is the current spread rate, and what is the total amount of positions. The best targets are definitely:

1. Annualized rate is high enough

2. The trend continues for three days

3. If you look at leveraged arbitrage by going long on contracts and shorting on spot, it is best to enter with a negative spread and exit with a positive spread.

4. Total holdings > 10 million u Liquidity is relatively able to support entry and exit

After sorting out the above four dimensions, you can decide whether to place an order!

5. AICOIN actual operation

If we use OKX's $PERP leverage contract arbitrage as an example, we can see the current spread rate, annualized rate of return, supported leverage multiples, and current & expected funding rate confirmation.

1. The estimated annualized rate of return is 165.118% ✓

2. Current & expected funding rates are both negative ✓

3. Support triple leverage ✓

4. The spread is 0.14% ✕

We can see that the entry spread rate recommended by the system is -0.07%. Therefore, if we want to enter the market for arbitrage, we can set the parameters first. As long as the spread is reached, the system will automatically buy for us, and the exit is the opposite.

6. Policy considerations

- Be careful not to trade in and out, as the handling fee will eat up your profits, which will be very different. According to group members’ experience, you should only transfer orders when you have a guaranteed return of > 2% of the principal.

- The principal of the party paying the fees will continue to decrease, so pay attention to rebalancing - Although it is a low leverage, it will still be liquidated in extreme market conditions, so pay attention to setting stop profit and stop loss

- Pay attention to the liquidity of pending orders. Some small-cap projects have very high annualized returns, but it takes a lot of time to enter and exit.

- Pay attention to the interest-free quota and handling fee calculation provided by the exchange. Being careful can make arbitrage smoother.

- Some trading pairs’ fees are not calculated every 8 hours, please pay attention to the exchange announcement