The AICoin arbitrage tool provides opportunities for funding rates and price spreads. Price spread opportunities are used to flexibly select suitable opportunities for futures and spot arbitrage, while funding rate opportunities are used to flexibly select automatic arbitrage, positive arbitrage, and negative arbitrage.

Here are several key points on how to select arbitrage opportunities with greater profit potential for currency pairs:

I. Funding Rate Arbitrage Opportunities

Funding rate arbitrage refers to holding opposite positions in perpetual contracts and spot at the same time to hedge price risk and collect fixed daily funding rate income from perpetual contracts.

Positive Funding Rate Arbitrage

The funding rate of perpetual contracts is settled every 8 hours. If the funding rate > 0, long positions pay the funding rate, while short positions receive the funding rate. In this case, the arbitrage trading operation is to buy spot and sell perpetual contracts.

Arbitrage Opportunity Screening Method:

Pay attention to the following data: current rate (predicted rate), cumulative rate over the past 3 days, spread rate, and position value.

1. Current rate (predicted rate) greater than 0% indicates higher funding rate income.
2. Cumulative rate over the past 3 days greater than 0% indicates stable and positive recent rates.
3. Check if the 7-day rate trend chart is above the red 0 axis line. Oscillation around the 0 axis line indicates unstable recent rates, possibly resulting in losses. If it remains above the 0 axis line, it indicates relatively stable rates.
4. A spread rate greater than 0% indicates lower opening spread costs, which helps reduce closing costs.
5. Position value greater than $10 million indicates a larger contract position value, allowing for more arbitrage funds.

Summary

1) Positive funding rates over the past 3 days result in higher funding rate income. 2) Prioritize finding combinations with high position values, at least in the range of tens of millions of US dollars (indicating good market liquidity). 3) A spread rate above 0.05% indicates higher unrealized profits from the opening spread and lower closing costs.

Negative Funding Rate Arbitrage

For negative funding rate arbitrage: If the funding rate < 0, short positions pay the funding rate, while long positions receive the funding rate. In this case, the arbitrage trading operation is to sell spot and buy perpetual contracts. When there are no spot positions, leverage borrowing is required to execute the spot selling operation.

Generally, when the funding rate can cover the leverage interest, it is worth doing arbitrage (recommended for traders familiar with arbitrage principles).

Reverse Arbitrage Opportunity Screening Method:

Pay attention to the following data: current rate (predicted rate), daily interest, 3-day annualized rate (net of interest), 7-day rate trend, spread rate, position value, and borrowing status.

1. Current rate (predicted rate) < 0, and check if the daily funding rate income is greater than the daily interest.
2. 3-day annualized rate (net of interest) > 0 indicates stable negative rates and profitability.
3. Check if the 7-day rate trend chart is below the 0 axis line. The further it is from the line, the higher the funding rate income.
4. Spread rate < 0, with a smaller spread rate being better for lower opening spread costs and reduced closing costs.
5. Position value > $10 million indicates a larger contract position value, allowing for more arbitrage funds.
6. Borrowing status: Some currency pairs may have exhausted their leverage borrowing limits, making it impossible to open arbitrage positions. However, the arbitrage strategy program can continue running, and once there are available coins to borrow, the program will immediately borrow and open positions.

II. Spread Arbitrage Opportunities

Spread arbitrage can be divided into futures-spot arbitrage and futures-futures arbitrage. Investors can use arbitrage tools to buy and sell the same assets (currencies) in different markets to capture price difference profits.

Futures-Spot Arbitrage

On the day of futures contract delivery, its price will inevitably be the same as the spot price. Therefore, when there is a price difference between futures contracts and spot, low-risk arbitrage can be conducted.

The screening of spread opportunities mainly depends on reference annualized rates, spread rates, 7-day spread trends, and position value.

1) 7-day spread trend: Determine whether the current spread is at a high or low level, and select combinations with higher spread rates. 2) Position value: A position value greater than $5 million is relatively stable. 3) Spread rate: A higher spread rate results in higher profits. When the spread narrows, closing the position can yield profits from the reduced spread. 4) Delivery date: Check the maximum duration to determine if arbitrage can be maintained for a long time. Generally, the farther the delivery date, the larger the spread. However, it is necessary to compare the spread income of different combinations. A higher reference annualized rate indicates a more worthwhile arbitrage.

Note: Profits are only related to the opening and closing spread, not to price changes.

Tips

The futures-spot spread has a regression characteristic, and Bollinger Bands can be used to determine the opening and closing points.

1) When the spread is at the upper Bollinger Band, it indicates a high spread, with a high likelihood of narrowing, suitable for opening long spread arbitrage positions. 2) When the spread is at the lower Bollinger Band, it indicates a low spread, with a high likelihood of widening, suitable for closing long spread arbitrage positions.

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