How to Use Cash Arbitrage in Cryptocurrency Markets

Cash arbitrage is a profit-making method based on exploiting price differences for the same asset across different trading platforms or time windows. In the cryptocurrency market, this strategy has become a tool allowing traders to earn from market inefficiencies without needing to predict price direction. The mechanism is simple: when the price of the same asset differs between the spot market and derivatives market, there is an opportunity to buy low and sell high simultaneously, locking in profit.

Main Types of Cash Arbitrage

There are several approaches to extracting arbitrage profit. The most common methods include working with price differences between spot and futures, utilizing funding rate disparities, and exploiting temporal discrepancies between different trading sessions.

Funding Arbitrage works through the difference in rates paid by traders holding perpetual contracts. When the funding rate is positive, long holders pay shorts. An investor can simultaneously buy the asset on the spot market and open a short position on perpetual contracts, earning profit from funding fees. When the rate is negative, the logic reverses: sell spot + long on contracts. For example, if BTCUSDT has a positive funding rate of +0.01% per day, a trader can buy 1 BTC on the spot for 30,000 USDT and simultaneously open a short position of 1 BTC on perpetual contracts. Price fluctuations of BTC in this case have minimal impact—profit comes mainly from the funding payments between participants.

Spread Arbitrage involves simultaneously buying and selling an asset on different markets. For example, if BTC’s spot price is lower than the futures price, the trader buys BTC cheaply and sells the futures contract at a higher price. When the contract expires, prices converge, and the difference becomes profit. This method works due to convergence: as expiration approaches, futures tend to move toward the spot price.

Why Cash Arbitrage Is Relevant Today

Modern crypto markets are fragmented, with liquidity and price differences across platforms creating constant profit opportunities. Unlike speculation, which requires correctly predicting price movement, arbitrage relies on mathematics and synchronization. This makes the strategy more predictable for traders willing to work with technically complex positions.

The main advantage is risk reduction through hedging. When you hold equal and opposite positions across different markets, price fluctuations are less concerning. You profit from divergence, not from market direction.

Practical Working Mechanism

Modern trading platforms offer specialized tools for automating this process. The system simultaneously monitors prices and liquidity for two trading pairs, allowing you to place limit or market orders in opposite directions with a single action. This eliminates lag risk—where one order executes and the other does not.

The system automatically checks your position balances every 2 seconds. If, for example, 0.5 BTC is executed in one direction and 0.4 BTC in the other, it will automatically place a market order for the remaining 0.1 BTC to maintain hedging. This feature is critical: unbalanced positions expose you to market risk, contradicting the core idea of arbitrage.

Important: balance checks operate 24 hours a day. Unfilled orders are canceled after a day, preventing situations where part of your strategy becomes invalid due to time delays.

Collateral Management and Collateralization

On a Single Trading Account (ETA) in cross-margin mode, you can use over 80 assets as collateral to open positions. This means you don’t need to hold funds solely in USDT or the asset you’re buying. If you own ETH worth 2000 USDT, you can use it as collateral to open a 2000 USDT position on the spot market and simultaneously open an opposite position on contracts.

The supporting margin mechanism is specifically designed for arbitrage. Since your positions are mutually protected, liquidation risk is minimal. The system considers your portfolio balanced—even if BTC’s price drops by 50%, both sides of your position will suffer equally, and the difference remains unchanged.

Risks and Limitations of the Strategy

Despite its attractiveness, cash arbitrage does not guarantee profit. First, partial order fills can lead to imbalance. If one side fills completely and the other does not, you are temporarily exposed to market risk. Second, when the system triggers automatic rebalancing with market orders, slippage can occur—your order may execute at a worse price than expected.

Third, insufficient collateral can prevent the system from placing both orders simultaneously. This can happen if the asset’s price drops sharply and your collateral value decreases.

Fourth, arbitrage tools do not automatically manage your positions. The system only places orders and rebalances if needed, but closing positions is your responsibility. Forgetting to close a position means it will continue to exist, and you will pay funding fees in a negative scenario.

Step-by-step Guide to Placing Orders

Step 1. Choose an asset and arbitrage type

Go to the tools section and find the arbitrage option. The system will offer a list of trading pairs, sorted either by funding rates or spreads. Select the pair with the most attractive indicator. For example, if BTCUSDT offers a +0.05% daily rate, it’s more advantageous than ETHUSDT at +0.01%.

Step 2. Determine direction and size

Decide whether your main position will be long or short on the spot market. The system will automatically set the opposite direction on contracts. Specify the amount—for example, 1 BTC for spot. The system will automatically set the same amount in the opposite direction on contracts.

Step 3. Choose order type

You can use limit orders (set a price, wait for execution) or market orders (execute immediately at current price). Nearby, current funding rate or spread values are displayed to help estimate potential profit.

Step 4. Enable automatic rebalancing

This feature is enabled by default and recommended. It will check your balance every 2 seconds and place market orders if needed to balance positions.

Step 5. Confirm both positions

Click confirm. The system will place orders simultaneously on the spot market and on contracts.

Step 6. Monitor your positions

After execution, you can track your positions in different sections: spot assets in the Spot tab, derivative positions in the Derivatives tab. Income from funding is shown in the ETA transaction log.

When to Use Cash Arbitrage

Arbitrage is especially useful in the following situations:

• When the spread between markets is large. If the difference between BTC spot and futures prices is 500 USDT, it’s an arbitrage opportunity worth exploiting.
• When funding rates are high. If the rate exceeds 0.05% daily (~18% annually), locking in this income makes sense.
• When quick response is needed. If you need to open two positions simultaneously, arbitrage eliminates the risk of opening one and failing to open the other.
• For large orders. When volume exceeds typical liquidity, simultaneous placement across two markets prevents excessive slippage.

Calculating Arbitrage Profitability

To assess attractiveness, the following metrics are used:

Spread = Ask price of sold ticker − Ask price of bought ticker

Spread (%) = Spread / Ask price of sold ticker

Annual Percentage Rate (APR) from funding = Total funding rate over 3 days / 3 days × 365 / 2

Total funding rate over 3 days = Sum of all funding rates over 72 hours

The factor 365/2 is used because funding is paid twice daily (every 8 hours, averaged over 3 days).

For example, if the total funding over 3 days is 0.15%, the annual yield is (0.15 / 3) × 365 / 2 = approximately 9.125%. Compared to typical deposit yields of 2-5%, 9% is attractive.

Frequently Asked Questions About Cash Arbitrage

Can I use arbitrage to close existing positions?

Yes. If you already hold BTC on the spot and want to hedge against price drops, you can open a short position on futures using arbitrage tools. Your spot position acts as collateral.

Is arbitrage available on sub-accounts?

Yes, provided the sub-account is configured as a Single Trading Account (ETA) in cross-margin mode. Standard sub-accounts do not support this feature.

Why isn’t my order filled even though I placed it?

The most common reason is insufficient margin to open both positions simultaneously. The system requires your collateral to cover both sides. Check your available margin and reduce order size if needed.

What happens if I disable automatic rebalancing?

Without rebalancing, the system will not adjust your positions. If 0.5 BTC is filled on one side and 0.3 BTC on the other, the imbalance remains. You become exposed to market risk.

How is the annual yield calculated?

The APR for funding rates is based on the average rate over the last 3 days, then extrapolated over 365 days. Past rates may differ from future ones, so this is only an estimate.

What happens after 24 hours of rebalancing?

If orders are not fully filled within 24 hours, unfilled orders are automatically canceled, and the strategy stops. This prevents positions from hanging indefinitely.

Where can I view the history of arbitrage trades?

After execution, you can view the history in the Spot and Derivatives sections respectively. Income from funding is shown in the ETA transaction log.

Cash arbitrage remains one of the most effective methods for earning on crypto markets, especially when price fragmentation persists. Start with small positions, monitor balance carefully, and remember to actively manage your positions.