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Arbitrage

Spread and ArbitrageGenerally, spread is the difference of two or more (it’s called basket then) financial instruments. Each instrument is generally taken into calculation multiplied by a weight coefficient. If a negative weight is used, the instrument will be sold when buying the spread and the other way round. Most traders say that markets nowadays have changed, become more volatile and chaotic. They are definitely harder to trade than 5 or 10 years ago. Classical trading, which worked a couple of years ago, now doesn’t. So most traders are in search of “the magical tool” to predict the markets, often using complicated mathematic formulas or even astrology. People are in search of a robust strategy, which will produce stable profit despite all the market changes. One of this strategies is spread trading. One important thing when trading the basket is the correct choice of instruments. Often highly correlated instruments are used, for example stocks of companies which operate in the same inductry, futures with different expiry times, currencies which depend on each other. This hint gives the opportunity to achieve a market-neutral position, where trader profits from divergence and convergence of instruments’ prices. Different types of spread trading are arbitrage trading and pair trading. Arbitrage trading is based on trading the same instrument or similar ones. Depending on the tools used, arbitrage trading can be divided into several types: – spatial arbitrage assumes the same instrument, traded on different exchanges, is used; – equivalent arbitrage is using an instrument traded on different markets, for example stock – futures on this stock, or stock – ADR; – Calendar arbitrage, where futures with different expiry dates are traded.
by TaherJalili
2
How much profit did the Bitmex arbitrage make?For at least three years now I have been advocating for the Bitmex futures "Cash and Carry" trade which is an arbitrage of the quarterly futures contracts versus the spot price of Bitcoin. With this recent selloff and hedge opportunity I wanted to demonstrate once again how this trade played out and its benefits. I've been telling people to do this not only in period of high volatility but also as a general hedging strategy to "lock in" the VALUE of Bitcoin at any given time that there is an opportunity. I seriously do not think anyone but myself utilizes this strategy because when I explain it to your typical crypto trader they get confused and invariably ask "but how Lambo?" This won't yield sick gainz brah but it will protect your capital ! To recap; a Cash and Carry trade is where one trades a futures contract against its underlying where there is a spread between the two prices. This is an arbitrage trade. Ideally the futures contract will move towards the spot price as time reaches the settlement date. In modern normie markets the spread between futures and spot are too small due to their high liquidity, margin interest requirements, and plenty of other arbitrage traders capturing the minuscule profit potential. This trade still remains though on the Bitmex platform. Bitmex has quarterly futures contracts which can be held without paying the fees of the continuous contract. These will often trade at premiums or discounts to the spot price of BTC. The spread of premium or discount will be largely dependent on market sentiment at that time. When Bitcoin is bullish traders are betting the price to be higher at settlement and the quarterly futures will trade at a premium. The inverse is true in bearish conditions. You can visualize this spread by pasting in "(XBTH20-XBTUSD)/XBTUSD*100" without " " to Tradingview symbol; you can also substitute for other contracts by changing the first symbol. So what happened in this recent selloff? The important thing here is that we are just trying to lock our BTC value at 0 delta to protect the value against such crashes. We do that by selling the futures contracts equivalent to our account value. Let's assume that when BTC was at around 10k a trader decided that it was time to lock in the USD value of their Bitcoin. Let's say they had 1 BTC in their account to keep it simple. On Februrary 9th the Daily bar closed at 10172 on XBTUSD. The March 27th quarterly futures contract (XBTH20) was trading at 10460. This meant that the quarterly futures were trading at a 2.8% premium to spot. So the trader Sells -10172 contracts of XBTH20 @ 10460. We want to set the contract size to BTC spot price rather than the futures price to mitigate risk in the event of further premium expansion. In the weeks that followed the market sells off. By March 12 the premium had inverted to a discount of -4%. We close the trade. At the end our BTC is worth over 57% less than it was at the start but we now own 2.4656 instead of 1. If we then calculate our account value in USD we have $10691. Though BTC is DOWN over half our total holdings value is UP by 5.1% ! Are we going to buy that Lambo this year with 5.1%? Probably not... but we have protected our assets and profited from this rare opportunity! A trader only ever uses 1x leverage to hold the position which means there is plenty of leverage available to trade other contracts while this one position is protecting account value. A final note about arbitrage opportunities: they always go away . As I've written before about December 2017 bubble the opportunity was around 18%! More recently when BTC dropped from 6500 the premium captured was 8%. This time it was only 5-6%. Slowly this inefficiency is indeed going away. Still, at any given time the futures contracts are trading at a premium this is a virtually riskless trade . Even if one doesn't like taking this trade just watching the spread is still a very useful analysis tool to gauge market sentiment.
XEducation
by norok
3
Asynchronous BTC cycle with some altcoins. How to make money.How to make money on some altas that go completely against the Bitcoin trend or are ahead / behind? How to use it for profit taking? The cycle on the principle of working on btc / usd - alt / usd - btc / usd. On many coins, a downward channel has now formed, both in the Alt / btc and Alt / USD pairs, most go synchronously to bitcoin. Which is logical, as bitcoin is growing in value in dollars. And on the one hand it seems in dollars, that is, in real money you will not earn anything on this. But some coins, on the contrary, move asynchronously, or at least late to the BTC / USD movement. Very often the difference is quite significant even in pairs to USD. This will be discussed. There are many pairs that asynchronously go a large period of time Alt / BTC, Alt / USD. I think that it is understood that the price itself does not move as a counterweight, but it is intentionally directed at a certain period of time by people who have their own interest in this. For a long time I have been watching how this is discussed in various resources on the topic of trading and cryptocurrencies. As a rule, these discussions and explanations do not have practical application, because the explanations come retroactively on the chart. ________________________________________ Explanations of the work. XLM / USD As an example, we see that a false breakdown on XLM / USD happened on November 12th. + 80% Then lowering the price to the lower border of the internal channel. And now the price is kept at the same level + - 15%. Roughly speaking, the price is kept from rising. BTC / USD At the same time, bitcoin is a completely different situation, although at first glance it seems similar. Just on November 12, a gradual, and then a sharp decline in the price of BTC / USD to the lower border of the domestic channel began, by -22%. And the price immediately rebounded + 20%. Let me remind you after reaching the borders of the internal channel on the XLM / USD pair, the price is kept at the same level, not allowing it to grow. It is also worth noting that the channels are enormously different in terms of percentage step by XLM / USD and BTC / USD: XLM / USD - 180% / 60% BTC / USD - 50% / 25% I think that you understand that this and the difference in the percentage step of the channel, plus the delay in price movement, is used to take profits. Also, the XLM / USD coin has good liquidity, then you can take substantial profits. In this pair, due to the large liquidity, you can scroll a fairly large amount of money. Principle of operation. Here is a simple example on an XLM / USD coin that formed a downstream channel like BTC / USD. But inside the channel, the movement is asynchronous to BTC / USD. Now the price of XLM / USD is moving down to the trend line of the internal channel , which acts as a support, the movement is now frozen in a lateral movement above this trend. Price does not allow further movement. While BTC / USD, the price goes up to the upper trend line of the domestic channel. At the upper border of the channel, if there is no breakthrough and consolidation above, we sell BTC / USD (sold at the local maximum of the channel). At the same time, perhaps XLM / USD will reach the bottom of the channel. We buy at the local minimum of the downstream channel XLM / USD for dollars that we received for selling bitcoin at local maximums. Then the whole action is repeated the other way around. It should also be borne in mind that this asynchronous arbitration is a profitable business, but altas always, when trend reversals, are ahead of BTC in profit in making real money. The correct entry / exit point is important. Hurry and greed is never necessary. I also want to add that in most cases, those coins that are sent to Bitcoin asynchronously are clamped in the horizontal channel. Rare cases, as an example, are higher on the XLM in the downstream channel, even less often in the upstream channel. The reason I think is understandable, as it is a completely manipulative action and it is easier to adjust the price precisely in the horizontal channel. You also need to understand that a certain pair can work for a while. I only know a few pairs that have been working asynchronously for bitcoin for more than a year and a half. This is a gold mine.
BEducation
by SpartaBTC
5
Comparison indicator - XBTZ19 / XBTUSD [BITMEX]This chart gives users indicator that how the quotation gap between future and Perpetual SWAP on BitMEX. Several conclusions base on simulation: 1. Both uptrend trend and downtrend could be used to gain profit; 2. During uptrend, quotation gap expanded, Long on SWAP and short on future came with loss and short on SWAP while long on future will be profitable; 3. During downtrend, quotation gap narrowed, Long on SWAP and short on future came with profit and short on SWAP while long on future will come to loss; 4. Price fluctation compound effect, the price fluctuation of underlying asset will have positive compound effect.
X
by Flyingcentus
Arbitrage on Kraken?When you take the time to find correlations or market-dysfunctionalities, there are still a lot of profitable Opportunities out there in the Crypto-World. In this case, it looks like - based on backtesting results - if XRPUSD on Bitfinex is rising, while XRPUSD on Kraken is falling, the propablity is high, that price on Kraken will start to rise too. This is what I call "CryptoArbitrageDivergence", because the price-movements of the same crypto-currency is heading in different directions on different Exchanges.
KRAKEN:XRPUSDEducation
by TradingClue
Gold vs oil . 17h45 Units numbers per product.It looks to me , that i should go for 1 Gold and 10 oil somehow. Broadly speaking, you could say that gold and petroleum are inversely correlated. One of the factors is that gold prices tend to lead moves in market sentiment, while oil price tends to follow economic growth. This is because, for example, investors will sell their gold in anticipation of the markets performing better. But, when the economy grows, demand for oil increases, meaning the price hike comes after the economy is already growing. www.cmegroup.com
OANDA:WTICOUSD
by DORMAN5
Commodity and fianacial spreads. 17h40Hello I am up at the moment after a few weeks. Patience. I will keep it for the time being but close just a bit. I may have been on the wrong side somehow for this last month or so. There is a book named - The encyclopedia of Commodity and financial spreads by Moore Research Center. It is a good book and it can help you to fall asleep. 8-) But i will use it as a reference somehow to open spreads. I recommend it . It talks about seasonality . As this si a demo ac, i can not trade the futures contracts in 2019, 2020 etc. That s OK. I will use the cash market instead.
OANDA:WTICOUSD
by DORMAN5
Forex basket Trade the NEWS : 10:01 05-Sep-19.LOG Forex basket Trade the NEWS : 10:01 05-Sep-19 For most new traders, the biggest challenge is getting a profitable strategy that works for the long term. Usually, trend-following systems are favored because they tend to have a very good risk-to-reward ratio. Trading the currency market is essentially a numbers game, basically traders look for strategies or systems that have a positive overall yield. The profit factor of any strategy is also very essential, because a profitable strategy should make more money or pips, than it loses. After some extensive research, I have discovered one of such systems. This strategy is built on one of the oldest trading adages around; “cut your losses early and let your profits run” and “the trend is your friend”. Basket trading involves opening a series of correlated or uncorrelated trades, and after an adequate amount of time, closing the trades when the overall sum of the trades is positive i.e. when the net value of all open trades is positive or close to our targeted profit-value. It is not 100% guarantee. The Trading setup The truth behind the Forex market is that currencies trend. This means that currencies have a tendency to keep gaining or diminishing over a long period of time. There are a lot of concepts about trading cycles and swings, but in reality if we were to zoom out of our charts we would notice a very obvious and unmistakable trend direction. Basket trading involves gauging the potential strength or weakness of a pair, and placing several trades that align with that analysis. Key Reports/Factors that Move FX Markets Any world events /news Financial crises and elections create financial uncertainty and, in turn, impact value of a country’s currency Central Bank monetary policy announcements Will affect size/growth rate of a nation’s money supply and, in turn, interest rates; can include key interest rate changes, buying/selling government bonds, reserve requirements changes FOMC (Federal Open Markets Committee) Meets 8 times a year to set U.S. monetary policy and key interest rate changes; impacts value of U.S. dollar, world’s reserve currency U.S. Dollar Index Measures the value of U.S. dollar relative to a basket of currencies for the U.S.’s most significant trading partners 09:57 04-Sep-19
by DORMAN5
The inverse correlation GOLD vs OIL 08:10 05-Sep-19.LOG The inverse correlation GOLD vs OIL 08:10 05-Sep-19 Gold can be used for speculation but is preferred as a safe haven. Crude, on the other hand, can be used as a store of value but is preferred as a speculative play. This combination makes these two assets work great together as mutual hedges. Gold helps offset the risk of higher uncertainty, while oil can take advantage of market moves. Broadly speaking, you could say that gold and petroleum are inversely correlated. There are a couple of major caveats to add to that notion. The first is that more nuance allows for more sophisticated trading. The second is that there is more to oil prices than just the market. born2invest.com Understanding Intermarket Spreads: Platinum and Gold www.cmegroup.com Basics of Futures Spread Trading March 5, 2011 by Craig Turner www.danielstrading.com
OANDA:WTICOUSD
by DORMAN5
The inverse correlation GOLD vs OIL 16:13 04-Sep-19.LOG Gold can be used for speculation but is preferred as a safe haven. Crude, on the other hand, can be used as a store of value but is preferred as a speculative play. This combination makes these two assets work great together as mutual hedges. Gold helps offset the risk of higher uncertainty, while oil can take advantage of market moves. Broadly speaking, you could say that gold and petroleum are inversely correlated. There are a couple of major caveats to add to that notion. The first is that more nuance allows for more sophisticated trading. The second is that there is more to oil prices than just the market. born2invest.com Understanding Intermarket Spreads: Platinum and Gold www.cmegroup.com Basics of Futures Spread Trading March 5, 2011 by Craig Turner www.danielstrading.com
OANDA:XAUUSD
by DORMAN5
Forex basket : 09:36 04-Sep-19 CAD Interest Rate Decision 10.30.LOG Forex basket : 09:36 04-Sep-19 For most new traders, the biggest challenge is getting a profitable strategy that works for the long term. Usually, trend-following systems are favored because they tend to have a very good risk-to-reward ratio. Trading the currency market is essentially a numbers game, basically traders look for strategies or systems that have a positive overall yield. The profit factor of any strategy is also very essential, because a profitable strategy should make more money or pips, than it loses. After some extensive research, I have discovered one of such systems. This strategy is built on one of the oldest trading adages around; “cut your losses early and let your profits run” and “the trend is your friend”. Basket trading involves opening a series of correlated or uncorrelated trades, and after an adequate amount of time, closing the trades when the overall sum of the trades is positive i.e. when the net value of all open trades is positive or close to our targeted profit-value. It is not 100% guarantee. The Trading setup The truth behind the Forex market is that currencies trend. This means that currencies have a tendency to keep gaining or diminishing over a long period of time. There are a lot of concepts about trading cycles and swings, but in reality if we were to zoom out of our charts we would notice a very obvious and unmistakable trend direction. Basket trading involves gauging the potential strength or weakness of a pair, and placing several trades that align with that analysis. Key Reports/Factors that Move FX Markets Any world events /news Financial crises and elections create financial uncertainty and, in turn, impact value of a country’s currency Central Bank monetary policy announcements Will affect size/growth rate of a nation’s money supply and, in turn, interest rates; can include key interest rate changes, buying/selling government bonds, reserve requirements changes FOMC (Federal Open Markets Committee) Meets 8 times a year to set U.S. monetary policy and key interest rate changes; impacts value of U.S. dollar, world’s reserve currency U.S. Dollar Index Measures the value of U.S. dollar relative to a basket of currencies for the U.S.’s most significant trading partners
by DORMAN5
Forex basket : 08:36 04-Sep-19.LOG For most new traders, the biggest challenge is getting a profitable strategy that works for the long term. Usually, trend-following systems are favored because they tend to have a very good risk-to-reward ratio. Trading the currency market is essentially a numbers game, basically traders look for strategies or systems that have a positive overall yield. The profit factor of any strategy is also very essential, because a profitable strategy should make more money or pips, than it loses. After some extensive research, I have discovered one of such systems. This strategy is built on one of the oldest trading adages around; “cut your losses early and let your profits run” and “the trend is your friend”. Basket trading involves opening a series of correlated or uncorrelated trades, and after an adequate amount of time, closing the trades when the overall sum of the trades is positive i.e. when the net value of all open trades is positive or close to our targeted profit-value. It is not 100% guarantee. The Trading setup The truth behind the Forex market is that currencies trend. This means that currencies have a tendency to keep gaining or diminishing over a long period of time. There are a lot of concepts about trading cycles and swings, but in reality if we were to zoom out of our charts we would notice a very obvious and unmistakable trend direction. Basket trading involves gauging the potential strength or weakness of a pair, and placing several trades that align with that analysis. Key Reports/Factors that Move FX Markets Any world events /news Financial crises and elections create financial uncertainty and, in turn, impact value of a country’s currency Central Bank monetary policy announcements Will affect size/growth rate of a nation’s money supply and, in turn, interest rates; can include key interest rate changes, buying/selling government bonds, reserve requirements changes FOMC (Federal Open Markets Committee) Meets 8 times a year to set U.S. monetary policy and key interest rate changes; impacts value of U.S. dollar, world’s reserve currency U.S. Dollar Index Measures the value of U.S. dollar relative to a basket of currencies for the U.S.’s most significant trading partners
by DORMAN5