Arbitrage trading
Arbitrage is a type of trading that capitalizes on imbalances in prices between markets. We will not go too deep in detail with what arbitrage is, as we have an E-book for that. This week’s article aims to provide an insight on how AlphaROC’s arbitrage trading algorithm actually works, and explain in detail how the algorithm executes a profitable arbitrage trade.
Alpha Arbitrage system
2/6/2020 18:33
Dual-Bridge
Binance/BitFinex
BTC/EUR
2/6/2020 18:29
Trigonous
[+]BitFinex/Binance/Binance
ETH/BTC/EUR
Above is an example of our data log of two of our trades that ran on our Alpha system, both of which were made via AlphaROC’s proprietary HAA arbitrage trading strategies. The data log, shows the timestamp of the trades taken, the strategy used, the exchange-traded on, and the pairs/triplets that the arbitrage involves.
Dual-Bridge
This strategy involves the buying and selling of the same coin, at the same time on different exchanges. In this case, the process of arbitrage is much faster, as there is no need to transfer funds from one platform to another. Traders store a balance of their desired cryptocurrencies on two exchanges during the same trading period. Transactions will then be conducted between both of those exchanges. The Dual Bridge Arbitrage strategy requires speedy price data and execution, and is a straight forward method of conducting arbitrage across exchanges. Below is an example of an arbitrage trade.
Dual-Bridge arbitrage
Trade start time:
2020–06–02 18:22:00
Last price evaluation timestamp:
2020–06–02 18:33:00
Quoting exchange:
BitFinex
Binance fee:
0.08000 %
BitFinex fee:
0.1000 %
Price level (transaction amount):
0.09889998 BTC (~1000.00 USD)
BUY BTC/EUR on Binance
BTC/EUR ASK price:
9045.00000000
SELL BTC/EUR on BitFinex
BTC/EUR BID price:
9069.30000006
Profits:
0.00010282 BTC (~0.93 USD)
All calculations have taken into account transaction fees as shown, and the VWAP price. VWAP is the Volume Weighted Average Price. This is the price according to the order book of the given exchanges. In laymen terms, the VWAP is the maximum amount of arbitrage available for a single arbitrage trade. In this arbitrage scenario, Bitcoin is bought using Euro on Binance, and Bitcoin is sold for Euro on BitFinex. The overall transaction would be risk-free and would net us a quick risk-free little profit.
Trigonous
The Trigonous Arbitrage strategy is similar to the Dual Bridge Arbitrage, except that it takes advantage of mispricing across multiple cryptocurrencies instead of just two cryptocurrencies. Multiple mispricings can occur within a single exchange or on multiple exchanges as the variety of quote currency option in exchanges opens up a long list of triangular trading patterns, in which we can leverage on to take advantage of the inefficiencies in its individual pricing.
Trigonous arbitrage
Direction:
forward
Trade start time:
2020–06–02 18:33:00
Last price evaluation timestamp:
2020–06–02 18:33:00
Quoting exchange:
BitFinex
Binance fee:
0.08000 %
BitFinex fee:
0.1000 %
Binance fee:
0.08000 %
Price level (transaction amount):
40.19636806 ETH (~50000.00 USD)
BUY ETH/BTC on Binance
ETH/BTC ASK price:
0.02466999
SELL ETH/EUR on BitFinex
ETH/EUR BID price:
223.81544229
BUY BTC/EUR on Binance
BTC/EUR ASK price:
9045.00000000
Profit : 1.21% (~605 USD)
For this trade, we did a forward direction Trigonous Arbitrage strategy. Three trades were made across two different exchanges. Let’s break down the transactions to understand how profits are generated here.
First, ETH is bought using BTC on Binance, then sold for EUR on BitFinex. Finally, BTC is bought using EUR on Binance. This trade nets us a profit of $605 in a matter of nano-seconds.
Conclusion:
Cryptocurrency markets are not as developed as traditional markets. As such, vast amounts of arbitrage opportunities exist. However, it is not easy for a human trader to identify and execute arbitrage trades even if he has the knowledge to do so.
Executing on arbitrage opportunities requires speed and precision, which can only be done so with the aid of sophisticated technology. Developing your own arbitrage trading algorithm can be difficult due to its complexity, not to mention costly and time-consuming as well. It is therefore advantageous for traders and investors who wish to tap onto algorithmic solutions to look for an algorithmic solution provider.
Dedicated solution providers, like AlphaROC, are a low-cost and efficient option for traders and investors. AlphaROC is armed with the relevant knowledge, time, and resources to develop, maintain, and innovate on complex algorithmic systems for their users. By leveraging on AlphaROC’s algorithmic trading solutions, traders and investors can then gain access to automated trade execution on countless risk-free and profitable arbitrage opportunities and start making money.
