Arbitrage on the Exchange: Strategies for Profiting from Price Differences

Arbitrage on an exchange is a trading method that allows cryptocurrency market participants to profit from price discrepancies of the same asset across different platforms or between various trading instruments. The basic idea is simple: buy the asset cheaper in one place and sell it higher in another, locking in a profit. In practice, exchange arbitrage is implemented through several proven approaches, each with its own features and management requirements.

The Three Main Types of Arbitrage in the Cryptocurrency Market

The most common approaches include:

Spot-Futures Arbitrage utilizes discrepancies between the asset’s price on the spot market and on the perpetual contract market. When the perpetual contract trades higher than the spot asset, there is an opportunity to buy on the spot market and simultaneously open a short position in the contract.

Funding Rate Arbitrage operates through the mechanism of payments between traders holding long and short positions. If the rate is positive, traders with long positions pay those with short positions. This creates an opportunity to earn additional income by buying the asset on the spot and opening an opposite position in the contract.

Cross-Exchange Arbitrage is executed by simultaneously buying and selling the same asset on different trading platforms. If Bitcoin’s price on one exchange is lower than on another, a participant can lock in profit from this difference.

How Arbitrage Works on Specialized Platforms

Modern exchanges, including those with a Unified Trading Account (UTA), provide tools for simplified placement of opposite orders at both trading stages — on the spot market and in derivatives.

Opportunity Tracking System displays asset ratings based on funding rates or spreads. Traders can see which trading pairs currently offer the most attractive opportunities. The ranking by funding rates shows pairs in descending order of profitability, while the spread ranking indicates the size of the price discrepancy between the contract and the spot.

Simultaneous Order Placement allows opening or closing a position on both markets with a single action. The system requires the asset amount to be identical on both stages but in opposite directions — if you buy on the spot, you sell in the contracts.

Intelligent Portfolio Rebalancing is an automatic mechanism that checks every 2 seconds how well orders are executed in both directions. If a mismatch is detected (for example, 0.5 BTC executed in one direction but only 0.4 BTC in the other), the system automatically places a market order to balance the positions. Each rebalancing cycle lasts 24 hours; after that, unfilled orders are canceled.

Extended Margin means that collateral can include not only the main assets but also over 80 different crypto assets. For example, if you have 30,000 USDT on your account and the current BTC price is 30,000 USDT per coin, this is enough to open a position of 1 BTC simultaneously on the spot and in perpetual contracts.

Practical Process of Opening an Arbitrage Position

The step-by-step process includes several stages:

Preparation Stage: Open the trading section, find portfolio management tools, and select the arbitrage option. Ensure your account is switched to cross-margin mode and uses a UTA.

Selection Stage: Review available trading pairs ranked by attractiveness of funding rates or spread size. Assess which arbitrage strategy on the exchange suits current market conditions best.

Configuration Stage: Choose the trading direction (long or short), specify the order size in one direction, and the system automatically mirrors it in the opposite direction. Decide whether to enable automatic rebalancing (usually recommended to reduce risks).

Execution Stage: Confirm to place orders simultaneously on both markets. Afterward, you can monitor active positions and view transaction history.

Management Stage: Track funding payments in the transaction log, and close positions via the arbitrage tool if needed. Remember, you are responsible for actively managing your positions — the system only places orders but does not automatically close them.

When Is Exchange Arbitrage Most Effective?

Several scenarios make exchange arbitrage particularly attractive:

• When a noticeable spread appears between spot and contract prices, allowing you to lock in short-term profit and minimize slippage risks from market fluctuations.

• If you need to execute a large order or market conditions require speed, simultaneous placement on both levels helps manage costs and protects against sharp price movements.

• When implementing multi-level arbitrage strategies, it ensures synchronized execution on the spot and derivatives markets, preventing situations where one order is filled but the other is not.

Risks to Consider

Despite its attractiveness, exchange arbitrage involves risks:

• Incomplete Execution Risk: If orders are filled asymmetrically (different amounts on each side), there is a risk of liquidation. That’s why automatic rebalancing is critical.

• Slippage During Rebalancing: Market orders placed automatically to balance the portfolio may execute at prices different from the initial ones.

• Margin Shortage: If available margin is insufficient, the system will not allow opening a position. Continuous margin level monitoring is necessary.

• Time Limitations: Rebalancing operates for 24 hours. If the position is not fully executed within this period, unfilled orders are canceled.

Reference Formulas for Profitability Calculation

To evaluate the attractiveness of arbitrage, several metrics are calculated:

• Spread Size: the difference between the selling and buying prices. The spread percentage is the difference divided by the selling price.

• Annual Percentage Rate (APR): based on the total rate over the past 3 days, extrapolated to a year. Formula: total rate over 3 days divided by 3, multiplied by 365, then divided by 2.

• Spread Yield Percentage: calculated similarly, but using the spread size instead of the funding rate, and the number of days until contract expiry instead of a fixed period.

Frequently Asked Questions

Can arbitrage be used to close existing positions?
Yes, the tool allows both opening and closing positions via the arbitrage mechanism.

Is arbitrage available on sub-accounts?
Yes, provided the sub-account is configured as a Unified Trading Account with cross-margin mode.

What happens if I disable automatic rebalancing?
The system stops checking the balance between orders. Each order operates independently, increasing the risk of imbalance and liquidation.

Why has rebalancing stopped even though orders are not fully executed?
The mechanism only operates for 24 hours. After this period, unfilled orders are automatically canceled.

How to view profits from funding payments?
Information on accrued funding payments can be found in the transaction log on the account assets page.

Why is there an imbalance between orders despite rebalancing being enabled?
Main reasons include insufficient margin to cover the opposite order or lack of liquidity in the market, preventing execution.

Does canceling an order on one market affect the arbitrage position?
If rebalancing is enabled, canceling an order on the spot automatically cancels the corresponding order in the contracts. With rebalancing disabled, orders operate independently.

Mastering exchange arbitrage requires understanding market mechanisms, constantly monitoring opportunities, and disciplined risk management. Beginners are advised to start with small volumes, thoroughly study all parameters, and enable automatic rebalancing to minimize risks.