On the other hand, the inefficiencies between each market give us plenty of opportunities to arbitrage. It\u2019s easy to reach 15%~50% APR with arbitrage strategies, and I\u2019m going to show you how to arbitrage from these inefficiencies.<\/p>\n\n\n\n
Before talking about how to seize the arbitrage opportunity, let me introduce the fundamental of perpetual futures contracts first.<\/p>\n\n\n\n
What is Perpetual Futures Contracts<\/h3>\n\n\n\n
Unlike traditional futures, perpetual futures contracts don\u2019t have an expiration date, so that traders can trade perpetual futures just like spot trading. That\u2019s one of the main reason perpetual futures contracts is so popular in the crypto community.<\/p>\n\n\n\n
Typically, traditional futures contracts settle on a monthly or quarterly basis. At settlement, the contract price converges with the spot price, and all open positions expire.<\/em><\/p>\n\n\n\n Since perpetual futures contracts never settle in the traditional sense, exchanges need a mechanism to ensure that futures prices and index prices converge on a regular basis. This mechanism is also known as Funding Rate.<\/em><\/strong><\/p>\n\n\n\n The funding rate plays an essential role in the arbitrage opportunity that we\u2019re going to discuss in the next section.<\/p>\n\n\n\n The funding rate ensures that futures prices and index prices converge regularly.<\/p>\n\n\n\n So when a perpetual futures contract is trading on a premium (higher than the spot markets), long positions have to pay shorts due to a positive funding rate. In contrast, short positions pay longs while the futures price is trading below the index price.<\/p>\n\n\n\n The Index Price consists of the average price of an asset, according to major spot markets and their relative trading volume.<\/p>\n\n\n\n The exchanges do not charge the funding fee. It\u2019s paid peer-to-peer.<\/strong><\/p>\n\n\n\n Most of the investors in the crypto market like to hold a long position rather than a short position, which means traders with long positions need to pay funding rates to those who have a short position.<\/p>\n\n\n\n So here\u2019s the arbitrage opportunity. We can hold a short position in the perpetual futures market and buy the same amount in the spot market, hedging our total investment. Our investment won\u2019t be affected by the market fluctuation due to the market-neutral position but receive funding rates with our short position in the perpetual futures contracts.<\/strong><\/p>\n\n\n\n To sum up, hold a short position in the perpetual futures market while holding the same amount of position in the spot market. Arbitrage with a market-neutral position and receive the funding rate every 8 hours.<\/p>\n\n\n\n The funding rate comprises two components: the interest rate<\/em> and the premium<\/em>. The interest rate fixed at 0.01% per 8 hours, and the premium varies according to the price difference between the perpetual contract and mark price.<\/p>\n\n\n\n The price gap is not always a fixed number between futures and index prices. It\u2019ll result in some profit if the gap is lower when you\u2019re about to stop the bot, and suffer from some losses if the gap is higher.<\/p>\n\n\n\n But it\u2019s not that much, which you can cover that loss within 2~3 funding rate income. If you take care of the price gap, you might earn some profit from the price gap.<\/p>\n\n\n\n Spot-futures arbitrage is a simple strategy that traders could do it manually, but it\u2019s better to use a tool for opening positions and closing positions due to the volatility.<\/p>\n\n\n\n There are some risks to perform spot-futures arbitrage manually that you should need to know in advance.<\/p>\n\n\n\n The above two examples show us how would our market-neutral position got broken under particular market conditions. To eliminate the above risks, Picol provides a bot for spot-futures arbitrage. Here\u2019s how would the bot deal with the potential risks:<\/p>\n\n\n\n Step 1. <\/strong>Open the Picol APP and click the \u201cEarn<\/strong>\u201d button at the bottom of the page and the \u201cArbitrage<\/strong>\u201d button at the top of the page, and then click \u201cCreate<\/strong>\u201c-\u201cArbitrage(Create)<\/strong>\u201c-\u201cAggressive mode<\/strong>\u201d to enter the bot parameter setting page.<\/p>\n\n\n\n Step 2. <\/strong>Select the target coin and preferred leverage for the arbitrage. Click the drop-down button next to the coin to lead you to the list sorted by the current funding rate.<\/p>\n\n\n\n Step 3. <\/strong>Fill in the investment amount and click \u201cCreate<\/strong>\u201d button. It\u2019ll automatically transfer some of your funds to your futures account and create a position in the spot and futures market.<\/p>\n\n\n\n Step 4.<\/strong> If you want to close the bot, just click the shutdown button on the right top of the bot. It\u2019ll close the position and return all your investment in USDT.<\/p>\n\n\n\n Arbitrage Opportunities In the Volatile Crypto Market T …<\/p>\nWhat is the Funding Rate<\/h3>\n\n\n\n
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<\/figure>\n\n\n\nWhat is Spot-Futures Arbitrage Strategy?<\/h3>\n\n\n\n
The Price gap between futures and index price<\/h3>\n\n\n\n
What are the risks for Arbitrage Bot ?<\/h3>\n\n\n\n
Picol Arbitrage-Aggressive Bot<\/strong><\/h3>\n\n\n\n
5 Tips for using Arbitrage Bot<\/h3>\n\n\n\n