I have always felt that as more people participate in such strategies, opportunities become scarcer, so I haven't delved deeply into it. This time I will try it out.
This article is my attempt to introduce how to use
Implement a monitoring tool for inter-exchange arbitrage opportunities in Python.
What is inter-exchange arbitrage?
Inter-exchange arbitrage is a strategy that achieves low-risk returns by capturing price differences of the same asset across different exchanges.
For example, when BTC is priced at 90,000 on Binance and 92,000 on OKX, one can buy low on Binance and sell high on OKX. When their prices return to equality, closing the position will yield the profit from the price difference.
There are many classifications of arbitrage, such as cash and futures arbitrage, inter-period arbitrage, and inter-variety arbitrage; arbitrage is essentially hedging trades of correlated varieties.
Among these arbitrage strategies, some are low-risk while others may carry significant risks; correlations between different varieties may fail, or there may be significant fluctuations beyond risk tolerance in the short term.
This article introduces cryptocurrency arbitrage across exchanges, attempting to develop a tool to monitor real-time prices of the same asset between different exchanges to discover potential arbitrage opportunities.
Reminder: This is just my attempt, and content related to financial trading should still be approached with caution.
Implementation Path
Before developing this tool, I need to clarify the implementation process, which can be roughly divided into several steps.
• Filter out tradable varieties across exchanges, and filter or correct some mismatches;
• Monitor the latest prices of the filtered varieties and calculate their pairing price differences;
• From the application perspective, analyze how to apply this monitoring result in actual trading;
Let's start practical operation
Pairing varieties
Begin the first step section, write about how to match trading pairs from different exchanges.
How to identify it?
I will pull trading pairs from two exchanges through code, pairing them by quote and base currency, such as BTC/USDT, where the quote currency is USDT and the base currency is BTC.
Also, when pairing, clarify the type of varieties to avoid unexpected pairings, such as wanting to pair perpetual contracts from exchange A and B, but mistakenly pairing spot from exchange A and perpetual from exchange B.
The variety types in CEX have distinctions between main types and subtypes. The main types may include spot, perpetual contracts, futures, and options, while subtypes can be positive contracts (U-based) or negative contracts (coin-based) for both perpetual and delivery contracts. We won't consider options here as they differ significantly from other trading varieties.
If you haven't been exposed to this part, it might be difficult to understand; actually drawing a relationship diagram makes it easier to comprehend. But I'm a bit lazy.
