3. Cryptocurrency risk-free arbitrage arbitrage strategy
(1) What to earn from risk-free arbitrage
Generally speaking, it is to earn market price differences and capital fees.
Cryptocurrency risk-free arbitrage is profitable by taking advantage of price differences and funding rates in the market. Here are some of the main ways to achieve profitability:
1. Futures arbitrage
Futures and spot arbitrage refers to taking advantage of the price difference between the spot market and the futures market (including perpetual contracts and delivery contracts) for arbitrage. For example, when futures prices are higher than spot prices, investors can buy a cryptocurrency in the spot market and short the same number of contracts in the futures market. When the price difference between the two markets shrinks or disappears, investors can close their positions and make profits.
2. Cross-exchange arbitrage
This is an arbitrage strategy that takes advantage of price differences between different exchanges. When the price of the same cryptocurrency differs on different exchanges, investors can buy on the exchange with a lower price and sell on the exchange with a higher price, thereby realizing risk-free profits.
3. Arbitrage across trading pairs
This strategy exploits price differences between different trading pairs. For example, there may be a price difference between the BTC/USD trading pair and the BTC/BUSD trading pair on an exchange. Investors can achieve arbitrage by simultaneously buying and selling the same asset in different trading pairs.
4. Triangular arbitrage
In this strategy, investors take advantage of price differences between three related trading pairs to realize profits. For example, investors can use the three trading pairs BTC/USD, ETH/USD, and BTC/ETH for arbitrage, and simultaneously buy and sell these trading pairs to achieve profits.
5. Take advantage of funding rates
In perpetual contract trading, the funding rate is the fee used to adjust the long and short power in the market. When the funding rate is positive, longs need to pay shorts; when the funding rate is negative, shorts need to pay longs. Investors can realize arbitrage gains by holding short positions when the funding rate is positive and long positions when the funding rate is negative.
6. Interest arbitrage
In the cryptocurrency lending market, investors can take advantage of interest rate differences between different platforms for arbitrage. For example, investors can borrow funds on a platform with a lower interest rate and then lend funds on a platform with a higher interest rate to realize interest income.
It should be noted that in actual operation, risk-free arbitrage may be affected by transaction fees, fund transfer time, market fluctuations and other factors. Therefore, investors need to carefully evaluate potential risks when implementing arbitrage strategies.
(2) Examples of futures arbitrage profits
When the spot price of a currency and the price of the perpetual contract reach a certain price difference, if the price difference is a negative number, the software will open a long and short position (i.e. spot buying, contract short selling); when the price difference is a positive number, the software will A position will be opened with a long short period (i.e. leveraged borrowing currency to sell, contract long). When the price difference returns, you start to close the position. When the price difference returns, you make a profit. Arbitrage means earning the price difference + capital fee. Open a position for arbitrage with a large price difference, and the position will be automatically cleared when the price difference returns.
for example:
If the spot price of a currency is 1,000 US dollars and the contract price is 1,100 US dollars, in the current < period, a long-term short position will be opened at this time (long spot position, short contract position), then there will be three situations when the price returns:
1. Unilateral rise: For example, the price returns to $1,200,
Then go long 1,000 to 1,200 US dollars on spot and make a profit of 200 US dollars.
If the contract is short between 1100 and 1200 US dollars and the loss is 100 US dollars, the overall profit will be 100 US dollars.
2. Unilateral decline: For example, the price returns to US$900,
Then the spot position is long 1000 to 900 US dollars, and the loss is 100 US dollars.
The contract is short between 1,100 and 900 US dollars, and the profit is 200 US dollars, so the overall profit is 100 US dollars.
3. Intermediate price: For example, the price returns at $1,050
Then go long 1,000 to 1,050 US dollars on spot and make a profit of 50 US dollars.
The contract is short between 1100 and 1050 US dollars, and the profit is 50 US dollars, then the overall profit is 100 US dollars.
Another way to open a position is that the short term is long (short spot, long contract). The same principle applies.
(3) Risk points of risk-free arbitrage
We believe there are two main risk points:
1. The exchange ran away;
2. USDT explodes (becomes worthless).
If the above two points occur, basically all investors will be unable to continue playing.
(4) Risk-free arbitrage type
1. Futures strategy
Futures and spot arbitrage refers to taking advantage of the price difference between the spot market and the futures market (including perpetual contracts and delivery contracts) for arbitrage.
(1) Long on spot and short on future (long on spot, short on contract)
Long spot and short futures (long spot and short contract) is a futures and spot arbitrage strategy. The core idea of this strategy is to use the price difference between the spot market and the contract market to achieve profits. In this strategy, an investor buys a cryptocurrency on the spot market while shorting the same amount on the contract market (such as a perpetual contract or a delivery contract). In this way, investors can achieve stable returns by hedging risks in the spot market and contract market.
(2) The current short period is long (collateral/cross-margin/isolate short, contract short)
The spot-short multi-term strategy is a futures-spot arbitrage strategy that achieves profits by taking advantage of the price difference between the spot market and the contract market. In this strategy, investors short a cryptocurrency on the spot market while buying the same amount of cryptocurrency on the contract market (such as a perpetual contract or a delivery contract). In this way, investors can achieve stable returns by hedging risks in the spot market and contract market.
2. Period-to-period strategy
A term strategy is an arbitrage strategy between contract markets that involves finding and exploiting price differences between different types of contracts.
(1) Perpetual contract vs. perpetual contract
This strategy involves arbitraging between perpetual contracts on two different exchanges. Investors can buy perpetual contracts on one exchange and simultaneously sell the same amount of perpetual contracts on another exchange, thereby taking advantage of the price difference between the two exchanges to achieve risk-free profits. The key to this strategy is to pay close attention to the price difference between the two exchanges and act at the right time.
(2) Delivery contract versus delivery contract
This strategy involves arbitraging between delivery contracts on two different exchanges. Investors buy a delivery contract on one exchange and sell the same number of delivery contracts on another exchange to take advantage of the price difference between the two exchanges. This strategy requires paying close attention to the expiration date of the contract, as the price differential can change significantly around the expiration date. Investors need to operate at the right time to achieve risk-free profits.
(3) Perpetual contract versus delivery contract
This strategy involves arbitraging between perpetual contracts on one exchange and delivery contracts on another exchange. Investors buy perpetual contracts on one exchange and sell the same number of delivery contracts on another exchange, thereby taking advantage of the price difference between the two to achieve risk-free profits. Since perpetual contracts and delivery contracts have different settlement mechanisms, this strategy requires more attention to the price trend of the contract and the difference in funding rates between exchanges.
3. Cash strategy
(1) Spot versus full position leverage
This strategy is an arbitrage between the spot market and cross-margin trading. Investors buy assets in the spot market and short the same amount of assets in the cross-margin market. In this way, when the spot price rises, the profits from the spot market can offset the losses from the cross-margin transaction; when the spot price falls, the profits from the cross-margin transaction can offset the losses from the spot market. Through this strategy, investors can achieve risk-free arbitrage between different markets.
(2) Spot versus isolated margin leverage
This strategy is an arbitrage between the spot market and isolated margin trading. Investors buy assets in the spot market and short the same amount of assets in the isolated margin trading market. Compared with cross-margin leverage trading, isolated margin trading provides higher risk management capabilities because investors can adjust the leverage multiples separately according to the risk levels of different positions. In this strategy, investors need to pay close attention to market price changes in order to operate at the right time.
(3) Mortgage spot versus full position leverage
This strategy is an arbitrage between the collateralized spot market and cross-margin trading. Investors borrow assets in the collateral spot market and sell them for cash, while using the cash to go long the same amount of assets in the cross-margin market. Through this strategy, investors can take advantage of interest rate differences between the lending market and cross-margin trading to achieve risk-free arbitrage.
(4) Mortgage spot versus isolated margin
This strategy is an arbitrage between the collateralized spot market and isolated margin trading. Investors borrow assets in the collateralized spot market and sell them for cash, while using the cash to go long the same amount of assets in the isolated margin trading market. Compared with cross margin trading, isolated margin trading provides higher risk management capabilities. In this strategy, investors need to pay close attention to market price changes in order to operate at the right time.
(5) Risk-free arbitrage across exchanges
Cryptocurrency risk-free cross-exchange arbitrage refers to the strategy of taking advantage of price differences between different exchanges. Since the cryptocurrency market is spread across the globe, there may be some degree of variation in prices on different exchanges. Investors can take advantage of these differences by buying a low-priced asset on one exchange and selling the same asset on another exchange for a higher price, thereby achieving risk-free returns.
(6) Risk-free arbitrage across trading pairs (different denomination currencies)
Cryptocurrency risk-free arbitrage across trading pairs (different denomination currencies) refers to the strategy of utilizing price differences between different denomination currencies for arbitrage. In this strategy, investors look for and exploit price differences between the same cryptocurrency (e.g., Bitcoin) and different denominated currencies (e.g., USDT and USDC) on the same exchange or different exchanges for arbitrage.
(7) Risk-free arbitrage of aliased coins
Cryptocurrency risk-free arbitrage (synonyms) refers to an arbitrage strategy that takes advantage of the price difference between different units of measurement (also called synonyms) of the same currency in the cryptocurrency market. In this strategy, investors look for and exploit price differences between different measurement units of the same cryptocurrency on the same exchange or different exchanges for arbitrage, such as spot LUNC/USDT and contract 1000LUNC/USDT.
Please continue to pay attention to Xiaoyi’s quantitative arbitrage series:
Xiaoyi teaches you how to do arbitrage step by step - a super arbitrage nanny-level tutorial based on Binance (1)
Xiaoyi teaches you how to do arbitrage step by step - a super arbitrage nanny-level tutorial based on Binance (2)
Xiaoyi teaches you how to do arbitrage step by step - a super arbitrage nanny-level tutorial based on Binance (3)
Xiaoyi teaches you how to do arbitrage step by step - a super arbitrage nanny-level tutorial based on Binance (4)
Congratulations, through the above learning, you have officially entered the door of cryptocurrency risk-free arbitrage. In the future, please follow our pace! ! !