Spot + Futures Arbitrage Strategy

This is the main method of futures arbitrage.

The bottom line is that you use a screener to find a bundle in which you purchase a coin on the spot and get into a short position on futures. A mandatory element is that the futures price must necessarily be higher than the spot. And earnings are generated due to the convergence of prices.

The price can go either way. Yes, that's true, but we don't care. Because if we buy a token on a spot for $1,000, and open a short position for $1,100.

Here we can have 3 scenarios:

1. The price of the token increased and convergence occurred at a price of $1,250. This means that we earned $250 on the spot and lost $150 on the futures.
The result is a return of $100.

2. The price of the token has converged at a price intermediate between the spot and the futures: by $ 1,050. We earned of $50 on the spot and also $50 on futures.
The result is a return of $100.

3. The price of the token dropped and convergence occurred at a price of $900. We lost $100 on the spot, and earned $200 on futures. The result is a return of $100.

When opening a deal, as well as all the time while the deal is open, check the financing rate. Funding can be both useful and harmful. It's nice to get an extra $ amount just for opening a deal.

However, if the profit from the convergence of prices in a potential deal is approximately 1%, and the financing rate is 0.1% (negative, shortists pay longists), then there is little point in entering into such a deal.

Yes, provided that we pay the funding rate 1-2 times, this is fine, but is there any confidence that you will limit yourself to this?

And here we come to a very important question: “when will the prices converge?”.
There are large coins, for example, TON, DOGE, for which arbitration situations arise.
Market makers work on them and convergence takes little time.

On such coins, the price can completely converge in 10 minutes. There are small coins without mm, it is more difficult for them. You can determine it simply by comparing charts between two different exchanges and see when the price last converged (turn on the daily frame and compare the minimum and maximum values of candles, then reduce to 4h, and so on, until the moment of divergence is found).

In general, it would not be superfluous to analyze and understand the reason for the discrepancy between spot and futures when entering into a trade (especially where the discrepancy is greater than 2%).

Sometimes this reason may be a closed input/output, you can simply write to support and ask when the input /output will become available again.

However, sometimes long waits pay off with a vengeance.

Step-by-step arbitrage plan for spot + futures strategy:

1. We find the spread through the screener
2. Ideally, it would not be superfluous to analyze the situation and find out the reason for the price discrepancy
3. We check the financing rate (if it is positive, fine, if it is negative, then you need to think about whether it is profitable for you to open such a deal, because a negative rate can not only reduce income, but also create a loss)
4. We enter the token in parts on the spot and on futures into a short position (if the deal is for 1000 coins, you need to buy in several orders of 100-150 coins each, this will protect you from a sharp jump in the exchange rate. In one of the chapters, we'll look at how to strategically open deals)
5. We are waiting for the price to converge, and while the price on the spot and in the short converges, we get the financing rate
6. After waiting for the prices to converge, we close the deal in parts on the spot and in the short.