This is a thought of the day kinda article.
In an old episode of Seinfeld, when referring to being offered a free lift, Jerry says something like “Ah the lift, like the lure of the siren’s song. Never what is seems to be but who among us can resist.”
Fast forward to trading crypto and we all see those arbitrage opps right?
That quick trade, if you bought on one exchange and sold on another, could make $50 in bitcoin or even $100. Like the lure of the siren’s song?
Like you, I have sat there watching it too. And at first you think ‘well this is easy’! It never is.
That’s not to say arbs do not exist, but chances are the risk-free ones are pounced upon before you can blink and the risk-on ones, well they have risk.
Unfortunately, there are several things that get in the way of a good-looking arb:
1. Commissions: obvious but often overlooked. Coin trades are charged a percentage, unlike the fixed dollar amounts in futures . That $50 trade, when you take into account % in and % out, is already breakeven. In futures to make $50 in an arb is gift because comms are far lower, but that’s another topic.
2. Then there is funding. If you are going to arb you need 2+ funded accounts. Even though interest rates are low, money isn’t free. That is also the opportunity cost of money, and that is… a cost. Sure, you could wait for a position to move from one account to the next, but then you have time risk. That’s not an arb trade.
3. Margin fees. If you are doing this on margin, then there are fees there too. Kraken for example chart 1-2bp per 4hours. Exchanges are not businesses not charities.
There are little programs you can buy that spot arbs. Then again there are prop firms who will bank roll traders with an automated edge in the market. If you had a little arb algo, working perfectly, would you bother selling it? Nah, go to a prop shop and get funded.
My time in prop firms has taught me if they are in something then the fat trades get thinner and thinner. They will also be faster and more efficient.
As Gekko said in Wall Street “If you don't have enough, you can't p**s in the tall weeds with the big dogs.”
That’s not a negative statement at all. It’s just one about knowing the market you trade. You don’t compete with the same strategy. You step back and trade your own. We all have our place in the market. If you are still finding your way, don't stress. We'll get there.
A good example of how deep pockets approach arbs is in the book Flash Boys.
In an old episode of Seinfeld, when referring to being offered a free lift, Jerry says something like “Ah the lift, like the lure of the siren’s song. Never what is seems to be but who among us can resist.”
Fast forward to trading crypto and we all see those arbitrage opps right?
That quick trade, if you bought on one exchange and sold on another, could make $50 in bitcoin or even $100. Like the lure of the siren’s song?
Like you, I have sat there watching it too. And at first you think ‘well this is easy’! It never is.
That’s not to say arbs do not exist, but chances are the risk-free ones are pounced upon before you can blink and the risk-on ones, well they have risk.
Unfortunately, there are several things that get in the way of a good-looking arb:
1. Commissions: obvious but often overlooked. Coin trades are charged a percentage, unlike the fixed dollar amounts in futures . That $50 trade, when you take into account % in and % out, is already breakeven. In futures to make $50 in an arb is gift because comms are far lower, but that’s another topic.
2. Then there is funding. If you are going to arb you need 2+ funded accounts. Even though interest rates are low, money isn’t free. That is also the opportunity cost of money, and that is… a cost. Sure, you could wait for a position to move from one account to the next, but then you have time risk. That’s not an arb trade.
3. Margin fees. If you are doing this on margin, then there are fees there too. Kraken for example chart 1-2bp per 4hours. Exchanges are not businesses not charities.
There are little programs you can buy that spot arbs. Then again there are prop firms who will bank roll traders with an automated edge in the market. If you had a little arb algo, working perfectly, would you bother selling it? Nah, go to a prop shop and get funded.
My time in prop firms has taught me if they are in something then the fat trades get thinner and thinner. They will also be faster and more efficient.
As Gekko said in Wall Street “If you don't have enough, you can't p**s in the tall weeds with the big dogs.”
That’s not a negative statement at all. It’s just one about knowing the market you trade. You don’t compete with the same strategy. You step back and trade your own. We all have our place in the market. If you are still finding your way, don't stress. We'll get there.
A good example of how deep pockets approach arbs is in the book Flash Boys.