Futures Arbitrage

Definition

In Futures arbitrage, the investor will:

• Long the Perpetual future on one exchange

• Short an equivalent amount in another exchange

How Coinsight Can Help

• Identifying an opportunity

  • Get Historical Data for Futures Markets

Analysis and Examples

Occasionally there are consistent price differences across futures and those can be used to generate consistent trading rewards. FTX had very liquid markets for futures that were consistently lower than other exchanges, making it an alternative to spot investment, and creating arbitrage opportunities against other exchanges. For example, between April 30 and May 20, DOT averaged -23% annualized rates (SOURCE).

Still, considering that each exchange has its own liquidity conditions and calculations for funding rates, it can still be possible for there to be consistently different rates across them. Over the last month, the annualized interest rate for AXS on Coinex was -25%, while on Bybit it was -4.3% (SOURCE). A trader at 10X leverage on both exchanges would have been able to get 100% annualized returns.

Imagine the trader has $1000. With $500 on each exchange, they could get: $5000 LONG on Coinex, earning 25% a year $5000 SHORT on Bybit, paying 4.3% a year This is equivalent to earnign 20.7% on the $5000 notional value, or 103.5% on the $1000 invested

One key advantage of arbitraging futures is that if exchange A has lower funding rates than exchange B, it also means that the price on exchange A is lower than exchange B, so we’re buying low and selling high. If the interest rates converge between the exchanges, usually the prices also converge and we can exit the trade at a profit, as long as the market is liquid enough and the earnings can compensate for the fees.