In this article, we would like to look into a more traditional strategy, spot-futures arbitrage, which can also be executed on OKEx.
What is Spot-futures Arbitrage Strategy
Futures price reflects the market sentiment of the subject’s price. Whenever there is market volatility, the spot price will deviate from the futures price significantly. The larger the difference between the 2 prices (basis), the better the opportunity for traders to arbitrage.
Under normal circumstances, quarterly futures contracts will have a larger basis than weekly and bi-weekly futures contracts, due to the fact that more uncertainties are expected for a farther delivery date. Therefore, we will use quarterly futures as an example in this report.
By plotting a graph of basis range versus time (hour), we learn that the basis of this contract in July lies between 100–200 most of the time.
Buy 1,000 USDT-worth of BTC on the spot market, transfer all to your futures account and open 10 short quarterly contracts, which equal to USD1,000. All positions remain delta-neutral (BTC price change does not affect the final yield).
If you hold only BTC in your account, you may borrow USDT from margin trading, then implement the same procedure above. However, due to the interest accrued during the process, your final yield will be lower.
Starting with 1,000 USDT as capital, opening spot-futures arbitrage position at 11:00 July 10. Close the position when negative basis occurs at 0:00 July 17 and calculate the yield:
Starting with 0.1 BTC as capital, borrow 1,000 USDT at margin trading and open spot-futures arbitrage position at 11:00 July 10. Close the position when negative basis occurs at 0:00 July 17 and calculate the yield:
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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.