Arbitrage profits surge often not at the very start of a rally, but when it’s already close to a stage peak.
What arbitrage makes isn’t profits from direction—it’s the FOMO (fear of missing out) in the market. The less quant capital there is, the more reckless it gets; the greater the price asymmetry—then fees and spreads become very “fat.” But this condition usually can’t last long.
Conversely, when only quant capital remains in the market, competing with each other and “outbidding” becomes the norm, profits keep falling and prices are more likely to weaken.
So arbitrage and building a position often follow two opposite logics: one is done when sentiment is at its hottest, and the other waits until nobody pays attention.
What arbitrage makes isn’t profits from direction—it’s the FOMO (fear of missing out) in the market. The less quant capital there is, the more reckless it gets; the greater the price asymmetry—then fees and spreads become very “fat.” But this condition usually can’t last long.
Conversely, when only quant capital remains in the market, competing with each other and “outbidding” becomes the norm, profits keep falling and prices are more likely to weaken.
So arbitrage and building a position often follow two opposite logics: one is done when sentiment is at its hottest, and the other waits until nobody pays attention.