Although arbitrage might be one of the trickiest trades, it carries the highest potential for a reward at the lowest possible risk. Here are some of the arbitrage techniques we utilize to earn market-neutral returns on our clients capital:
International/Spatial arbitrage arbitrage
International arbitrage is the act of buying and selling the same quantity of an asset in two different geographic markets. Global arbitrage works on the principle of price differential created due to the market's inefficiencies. For example, at Crypto Arbitrage, international arbitrage entails a trader or trading bot buying a cryptoasset from a market in one country at a lower price and selling the same quantity of the cryptoasset in another country's market a higher price to earn a riskless gain. Once the profit is realized, Crypto Arbitrage exports the capital back to our US or EU crypto exchange accounts to repeat the process.
Direct arbitrage is also known as two-point arbitrage, and it involves two exchanges. In this form of arbitrage, cryptoassets are bought from exchange A and sold at exchange B for a higher price. Crypto Arbitrage typically completed direct arbitrage within a 3 - 15 minute timeframe. This type of trade is similar to international arbitrage; however, it does not require Crypto Arbitrage to convert the sold asset into a local currency and then repatriate the funds using an FX transfer. With direct arbitrage, we only use cryptoassets, transferring them between different exchanges when price differentials arise; however, we do not need to convert them into a local currency to realize a profit.
With this type of arbitrage, we work within one exchange only. Crypto Arbitrage identifies price differences between multiple cryptoasset pairs within a single exchange and exploits this differential as and when they arise. With this type of arbitrage, we do not need to transfer cryptoassets to another exchange; the profit is derived purely from the current exchange.
This type of arbitrage involves only two exchanges for doing 3 step arbitrage, i.e. Buy, Convert, Sell. So, for example, we may buy a cryptoasset from Kraken, convert the cryptoasset on Binance and then sell the converted cryptoasset back on it at Kraken - completing the loop and realizing the profit.
Triangular arbitrage is also known as three-point arbitrage, and it involves three exchanges. Triangular arbitrages are similar to loop arbitrages; however, they include one extra step. For example, Crypto Arbitrage may buy a cryptoasset from Kraken, convert the cryptoasset on Binance and then sell the converted cryptoasset back on it at Huobi - completing the triangle and realizing a profit.
With spot-futures arbitrage, Crypto Arbitrage derives risk-free profits by opening a long position of a cryptoasset in the spot market and then opening a dollar corresponding short position in the futures market. Therefore, it doesn't matter if the price of the cryptoasset increases or decreases; the dollar value of the holding remains the same. However, Crypto Arbitrage benefits by earning the daily funding rate from the exchange as a short position holder. The funding rate is paid by long leveraged traders in the futures market to short leveraged traders to prevent price divergence in the futures market. The funding rate is paid to Crypto Arbitrage every 8 hours. Therefore, we earn a return 3-times a day in this market; however, we only publish the arbitrage trade results once we shut down the futures and spot positions and realize the arbitrage gain.