悟空社区Nuk

Path to Advanced Contracts (Arbitrage Section)
1. Spot contract hedging is the main method for large funds to hedge risks. Perpetual contracts incur funding fees three times a day, which creates arbitrage opportunities. The simplest method is to find two exchanges for the same cryptocurrency with significant differences in funding fees. Open a short position on one with a positive and relatively large funding fee, and a long position on the other, keeping the opening price, margin, and leverage the same, thus forming a hedge and earning funding fees. Regarding leverage, 5-10 times is preferable; higher leverage risks liquidation, while arbitrage requires long-term earnings from funding fees, and frequent position adjustments incur high transaction fees. Lower leverage results in low capital utilization.
2. Regarding leveraged contract arbitrage, to increase capital utilization, leverage can be added to spot trading. Taking U-based as an example, the daily interest rate for borrowing U on exchanges is generally 0.02%. If the total daily funding fees for contracts exceed 0.03%, there is profit potential (during bull markets, this is generally greater, while in bear markets, it may turn negative). OK's unified account allows shared margins, enabling higher leverage without frequent position adjustments, but as more arbitrageurs enter, funding fees will not remain too high. Recently, I used 10,000 U leverage to buy 1 BTC on Gate exchange, with U automatically borrowed. On BigOne exchange, I opened a short position on BTC/U perpetual contract at X10 (with 10,000 U margin) for 1,000 contracts (equivalent to 1 BTC), with daily funding fees of 0.1-0.2%. The contract is set with a stop-loss, and leverage is set with a take-profit. Finding cryptocurrencies with high funding fees relies on personal research; some trading software can help, and I’ve encountered funding fees as high as 6%.
3. Regarding risks, the first is slippage; the buy and sell prices on both sides may not match. Generally, with limit orders and no significant market fluctuations, this won’t occur. If buying at a low price with leverage and opening a short at a high price, one can still profit from the price difference. Setting the leverage sell order price slightly above the contract stop-loss price can also reduce slippage.
The second risk is loss. Generally, during upward movements, sales occur at the set price, preventing losses. However, rapid price corrections can trigger forced liquidation at the leverage price, while contracts may also be forcibly closed for profits, which can lead to losses. Therefore, during significant corrections, it’s advisable to close positions in advance to prevent losses.

About the mindset control issue when making contracts
First of all, everything starts from "feedback stimulation".
When you were a child learning to speak and do things, when you did well your parents encouraged you, and when you did poorly your parents criticized you, that is "feedback". Being encouraged makes you happy, being criticized makes you unhappy, that is "stimulation". Through feedback stimulation, conditioned reflexes are formed, and behavioral preferences are strengthened.
In terms of making money, the feedback cycle in physical businesses is very slow; farmers plant crops and only receive feedback once a year.
However, the trading market is different; the feedback cycle is very fast, and it is easy to make a lot of money or lose a lot in a short period.
Contracts are even faster than general trading; they are like an "automatic vending machine" where you can get stimulation feedback anytime you want. Therefore, it is easier to develop preferences & addictions under "feedback stimulation".
Next, let's talk about trading preferences.
Why do people have strong trading preferences?
Because once they accidentally made money using that method, after repeating it a few times and tasting the sweetness, they always think about “waiting for the rabbit” to make money using the same model.
Why do some people always try to catch the top, some always try to catch the bottom, some always chase breakouts, and some always think about copying? These methods gave them huge rewards at certain moments, but at other times they lose money every day.
But don’t think that losing money will change people’s habits.
Pain can discourage people from being proactive about that model and lead them to doubt the problems with this way of playing.
However, pain itself is a stronger feedback stimulus than pleasure, which may lead people to another problem, “over-trading”.
So how do you adjust your trading preferences?
It’s simple, do the opposite for stimulation.
If you get beaten up every day for shorting, then go long; after making a few profits, you will taste the sweetness and no longer have a strong preference.
Again, let's talk about over-trading.
Trading is a quick feedback automatic feedback machine. Whether it encourages you or strikes you, it will give you strong stimulation. The more you trade, the more trading there will be, which is why some people are addicted to short-term trading and cannot extricate themselves.
So how do you solve over-trading?
It’s simple, set a "cooling-off period"; exchanges generally have this function, so take a break whenever you trade too frequently.
It's somewhat similar to the process of detoxification.
Finally, let’s elevate the discussion.
What feels good generally doesn’t last and cannot be replicated.
Pleasure is instinctual, but making money requires patience.