Arbitrage Strategy in the Quantification of Digital Assets

In the quantitative trading of digital assets, there is a simple, well-understood and stable strategy. To say that it is simple is because a little code can fix it; it is easy to understand like how to buy things; it is stable because it captures the spread and ignores the price rise and fall. (www.fmz.com)

First, the principle of arbitrage strategy

The arbitrage strategy is a cross-market arbitrage strategy. The basic principle is to buy bitcoin on a low-value trading platform, and to sell the same amount of bitcoin on a high-value trading platform, thus achieving stable profitability. To put it simply: in the A market, I bought 5 pounds of apples at price of 1 yuan per pound, and then I found that the same apples in B market are sold 1 block per pound, and each apple has 5 cents spread. I earned 2.5 yuan when I sold apples in B market. Similarly, on different trading platforms, the same subject have different prices, as long as there is a spread, you can do arbitrage.

Second, arbitrage methods

For the digital currency trading market, there are generally two ways to arbitrage:

1. When you see the price difference between the two markets, immediately buy coins on the low-priced trading platform A, and then move your coins to the high-priced trading platform B to sell and obtain the spread profit. This method is more traditional, commonly known as "moving bricks."

2. Use computer program to do arbitrage. In the initial state, put the same amount of coins and the same amount of money on two trading platforms. When you find that there is a price difference between the two markets, you immediately buy the coins on the low-priced trading platform A, and then sell the same amount of coins on the high-priced trading platform B. So the total amount of coins held in the hands has not changed, but the money has increased. Because the program is very fast, you can quickly seize the opportunity and gain profits.

Third, problems we are facing

It seems very simple, but there are actually some problems to think about:

1. The risk of “moving bricks” is: because the speed of withdrawing coins in different trading platforms is different, the trading platform needs to confirm the blockchain after the coins are issued, and the price of the two markets is likely to reverse in period of withdrawing coins. After this, the spread may disappear or even reverse, then it was impossible to sell and gain profit.

2. Program arbitrage looks perfect, but there are risks: program trading needs to call the API interface of the trading platforms, so once the API fails, it will cause losses. Another risk is that because of the unilateral market, there will be situation that a trading platform is only money while the other trading platform only has coins, so that it is impossible to conduct bilateral trading, and only wait for the price difference to reverse, or manually withdraw money or coins, which involved the risks mentioned in “moving bricks”.

Therefore, if you want to make money, you still need to think carefully. However, using computer program has relatively larger advantages. If there is no accident, then every profit can be grasped, and more important is to save time and energy.

Fourth, the problem of program arbitrage to deal with

To do program arbitrage, except the above risks, the following small problems also needs to be solved:

1. How to connect the real market

Each trading platform has its own interface. After each interface is connected according to the document, the measurement can be written.

2. which to deal first, the purchase order first, or the sell order

It is recommended to process the sell order first and then the purchase order. The reason is: Bitcoin is a floating asset. Realize the floating asset and then purchase is an optimal short-term position control method.

3. How to ensure that the number of transactions in the two orders is the same

In order to ensure the two orders are in same number of transactions, the program needs to get the execution result of the previous sell order before executing the buy order, and then set the quantity to be bought according to the result.

4. When to trigger bitcoin transfer and fund transfer between trading platforms

In fact, everyone has a different way. The general approach is to set a minimum position line for the two trading platforms. If the position of any trading platform touches the line, it triggers a bitcoin transfer and funds transfer between the trading platforms. Transfer. The result of the transfer is that the two trading platforms have the same coins and same money.

Sum up: The arbitrage strategy is to put the same amount of money and coins on the two trading platforms. When there is a spread, sell high and buy low, and keep the amount of coins unchanged, and make the money gradually increase. Although the arbitrage strategy trading strategy does not have a lot of profit after deducting the fee for each transaction, because the spread of each trading platform is common, the program can be running 24 hours, and the profit is still considerable for a long time. (www.fmz.com)