Cross-Exchange Crypto Arbitrages Opportunities Analysis
Due to the inefficiency that still exist within the new crypto industry, large arbitrages exist especially during periods of volatility . Presenting risk-minimal trading opportunities for individuals, sometimes without the need to hold the token/crypto asset for very long at all.
Trading-view did not allow me to share less then 15min timeframe chart, but to analysis arbitrages you need a much smaller time-frame, for example as i examine in 1 minute time-frames below:
The first chart show the price differences between different exchanges for the same asset (easy enough for anyone to setup, just subtract price on one exchange from the price on another for the same token pair). Whilst the second chart shows a small circle / dot whenever an arbitrage of more then 1% opportunity occurs, with the y-axis showing the percentage differences (or gains to be made) from that pairing. If that difference is greater than set 'min_profitability' a label will also pop up with showing which exchange to BUY (or LONG) and which exchange to SELL (or SHORT) the asset to gain this arbitrage profit (eg. >1% - fee's). The labels will remain as long as thats the most recent opportunities for those exchanges, and disappear when a new opportunity arises on that exchange pairing.
To take advantage of this tool:
1. Setup custom charts like i did. And then your 'var' set, go to 'settings' and it gives you options; where you put the name of different exchanges you would like to use (followed by a ":") and then whatever crypto asset(pairing) you want to trade. Eg. in this example i have put BINANCE:LUNABUSD as the first option,
LUNAUSDT
, etc.. but you could pick lots of different ones, looking for whatever has good patterns and sufficient liquidity. My tips: i first go to crypto screener: (https://www.tradingview.com/crypto-screener/), and sort out based on certain criteria, including '24 hour trade volume' > X amount, Volatility > X% amount etc, looking for pairs that have high volatility (means will have lot more arbitrage opportunities) and the exchange/pair have sufficient trade volume & liquidity to allow for high frequency and high enough volume trades to occur. At the time of posting this, OKCOIN:LUNCUSD, COINBASE:OMGUSD,
THETAUSDT
,
GMTUSDT
are other examples that have very high volatility. Even
BTCUSD
showed some high volatility this week, and as such would be suitable.
2. Then you can do one of three things here:
Developed by Shane (Laowai Koala on Hummingbot's Discord): Im a sports physiotherapist and Masters in Data Analytics university student (not at all a financial expert), whom is just practicing some coding and data science skills. Still learning, and trying hypothesis out to make easier for anyone. As such this is just opinions and not financial advise, and also may have some bugs in the indicator script code i still need to improve or fix up before its open source (patience is a virtue).
Trading-view did not allow me to share less then 15min timeframe chart, but to analysis arbitrages you need a much smaller time-frame, for example as i examine in 1 minute time-frames below:
The first chart show the price differences between different exchanges for the same asset (easy enough for anyone to setup, just subtract price on one exchange from the price on another for the same token pair). Whilst the second chart shows a small circle / dot whenever an arbitrage of more then 1% opportunity occurs, with the y-axis showing the percentage differences (or gains to be made) from that pairing. If that difference is greater than set 'min_profitability' a label will also pop up with showing which exchange to BUY (or LONG) and which exchange to SELL (or SHORT) the asset to gain this arbitrage profit (eg. >1% - fee's). The labels will remain as long as thats the most recent opportunities for those exchanges, and disappear when a new opportunity arises on that exchange pairing.
To take advantage of this tool:
1. Setup custom charts like i did. And then your 'var' set, go to 'settings' and it gives you options; where you put the name of different exchanges you would like to use (followed by a ":") and then whatever crypto asset(pairing) you want to trade. Eg. in this example i have put BINANCE:LUNABUSD as the first option,
LUNAUSDT
, etc.. but you could pick lots of different ones, looking for whatever has good patterns and sufficient liquidity. My tips: i first go to crypto screener: (https://www.tradingview.com/crypto-screener/), and sort out based on certain criteria, including '24 hour trade volume' > X amount, Volatility > X% amount etc, looking for pairs that have high volatility (means will have lot more arbitrage opportunities) and the exchange/pair have sufficient trade volume & liquidity to allow for high frequency and high enough volume trades to occur. At the time of posting this, OKCOIN:LUNCUSD, COINBASE:OMGUSD,
THETAUSDT
,
GMTUSDT
are other examples that have very high volatility. Even
BTCUSD
showed some high volatility this week, and as such would be suitable. 2. Then you can do one of three things here:
- Option (a) Bot-trading : to analysis opportunities for using a arbitrage bot find the pair with the best pulsating or radio frequency look. Or in other words an exchange and crypto pair that has a good high frequency pulse (the blue in this example as such is the best exchange pairs). Also not necessarily want the pair with highest arbitrage as you need a pairing that moves above and below the 0 (zero-line) frequently, so it can do lot of trades both ways for example Exchange A > Exchange B (A.BUY > B.SELL) and then (A.SELL >N.BUY), to keep rebalancing the portfolio or holdings of crypto asset or stable-coin in the exchanges so trades can keep occurring frequently and arbitrage profits can be realised. Then you can also examine the pulses and find at what percentage the pulses 'candles' tends to cross or hit above/below the most frequent (or is the most profitable on analysis over a 24hour window) to config your bot. In this case the green lines the blue one tends to hit frequently, so as such this would be the min profitability config i set for the bot on this exchange pairing. This strategy might hold more risk as need to hold both currencies on all exchanges to do it. This approach could also be done manually, if doing it manually set up ALERTS for whenever the dots occur (arbitrage opportunities) which will signal a notification on your tradingview app (computer and/or phone) informing you what trades to make and then do those.
- Option (b) Manually Transfer Between Exchanges: the method that Sam Bankman-Fried first got rich and famous for doing with his Alameda Research company before he founded FTX (https://finance.yahoo.com/news/sam-bankman-fried-explains-arbitrage-132901181.html). To do this strategy look for the one with the big arbitrages that hold for a long-time, and manually buy the crypto on exchange 1 (↑) that is the lowest, and then transfer it over manually to sell it on exchange 2 (↓). On this one example, an arbitrage between
LUNAUSDT
& BINANCE:LUNABUSD of 12.5% occurred today and it has also held up that arbitrage (>2%) for most of the day. If more then one pair is in arbitrage, then you can repeat across a 3rd exchange, before coming over to the first exchange again. This way you balance out all your assets (across the exchanges) back to where they were to start with. Make sure to pick ones that hold their arbitrage for a long-time, so have time to buy, transfer, and sell, then withdraw Fiat or stable-coin back, and exchanges that allow easy withdrawals. Try pick exchanges that have the same bank, or even use the same bank as you do, so withdrawals back to your bank are fast / near instantaneous. The purple in this example is following similar pattern to the KimChi and Japan premiums that Sam Bankman-Fried took advantage of actually, as that is Huobi exchange (a Chinese exchange) which tends to show differences due to different peak trade (liquidity) periods compared to exchanges with Americans and European trading during different time-zones.
- Option (c) Derivative Hedge: : probably has the lowest risk. Here to use derivatives or perpetual contracts, and go LONG on the cheaper exchange and go SHORT on the higher priced exchange, so no cross-exchange transfers of assets are needed to re-balance your portfolio across the exchanges, and there is no need to hold onto a possibly risky/highly volatile asset neither. So for this example pick the purple one and then wait until the arbitrage stops, or the difference between the two exchanges comes back near to 0, which you can see on the chart, and then close the positions and thus making the arbitrage gains, and closing off to not hold any crypto. And wait until the peak arbitrage occurs again to open up the two positions again. A hybrid of this can be utilised to minimise your risk in Option (b) to, so open up a SHORT hedge on the exchange once you BUY that crypto and keep that SHORT open until you manage to SELL and withdraw on the other exchange so that you don't risk loses from a sudden price movements of the underlying asset.
Developed by Shane (Laowai Koala on Hummingbot's Discord): Im a sports physiotherapist and Masters in Data Analytics university student (not at all a financial expert), whom is just practicing some coding and data science skills. Still learning, and trying hypothesis out to make easier for anyone. As such this is just opinions and not financial advise, and also may have some bugs in the indicator script code i still need to improve or fix up before its open source (patience is a virtue).
Comment:
For those that asked, to do this chart is very simple, you just need to chart the price on one exchange from the price on another exchange eg. "BINANCE:LUNABUSD-KUCOIN:LUNAUSDT" that then will show you the current arbitrage. The second chart a bit more and as such requires a custom script, as its measuring lot more things to determine the arbitrage opportunities.
