Futures Arbitrage: How to Profit from Price Differences?

What is arbitrage in investing

What if you could earn a profit without risk, simply by taking advantage of price differences? At first glance, it sounds too good to be true – but that is exactly what arbitrage is built upon. In the world of investing, arbitrage strategies are among the most pragmatic and "cold-blooded": here, emotions do not matter, but speed, information, precise calculation, and the ability to notice even minor price discrepancies do. Arbitrage has become especially relevant in the era of digital assets, where the market operates 24/7 and opportunities for profit appear every second.

Below, we will analyze in detail what arbitrage is, what types exist, how it works in cryptocurrency, and how to start applying these strategies in practice. We will also cover which factors to consider when trading and choosing position sizes.

Definition of arbitrage

Arbitrage is a type of investment strategy that involves buying an asset cheaper in one place and subsequently reselling it more expensive in another. It is easier to explain with an example from everyday life:

Anna bought chocolate in an online store during a sale for $40 per bar. She ordered 20 bars and spent $800. Later, she listed them on a marketplace where the same bar sells for $60. All 20 bars were quickly sold, and Anna received $1200. Thus, her profit was $400 due to the price difference between the two platforms.

In this example, there were certain risks: while Anna was acquiring the chocolate, its price on the marketplace could have dropped. However, everything worked out so that she ultimately made a profit – this reflects the core essence of arbitrage: risks will always exist, but the resulting profit can significantly outperform traditional trading and investing.

However, when it comes to arbitrage in financial markets, the situation looks somewhat different than with chocolate: the value of an asset can change in a fraction of a second, and the market rate is constantly updated.

To avoid losses that may occur if the asset price on two platforms equalizes, arbitrageurs prefer to conduct the transaction simultaneously: buying on one platform and immediately selling on the second. This approach requires careful study of the market for assets where arbitrage situations frequently arise.

There are situations where the spread (the price difference of an asset on different platforms) lasts for a long time. In this case, arbitrageurs do not necessarily need to have the asset on both platforms at once: they can purchase it on one and transfer it to the other.

Types of arbitrage

Although arbitrage, in essence, is not much different from ordinary speculation, it has several variations that have a number of differences between them.

Inter-exchange arbitrage

In this type of arbitrage, exchanges from different countries are used, between which assets are moved. Cryptocurrency exchanges are also used, where everything is much simpler: it is enough to go through the identity verification procedure (and on some exchanges, it is not required for working with crypto) and you can sell or buy coins.

The plus of arbitrage with traditional assets is that the final income may be higher due to complexities with transfers, registration on the necessary exchanges, and other bureaucratic issues. You can add to this that at each stage of transferring an asset from one country's exchange to another, it can be blocked. As a rule, currency is used for inter-exchange arbitrage – and it can be blocked by a financial regulator of some country until all the details it needs are clarified.

However, a significant disadvantage of this type of arbitrage is the age of high technology. Prices for all traditional assets presented on exchanges equalize quite quickly, so "catching" the moment for arbitrage becomes extremely problematic.

Therefore, today inter-exchange cryptocurrency arbitrage is more popular: the chance of asset blocking is much lower than in the traditional version, and registration on crypto platforms is not difficult.

Spot-futures arbitrage

The essence of the strategy is as follows: the arbitrageur buys an asset on the spot market and then sells a futures contract for it with an expiration date in a few months. As a rule, the price of an asset on the spot and futures markets diverges quite often, and it is precisely because of this that arbitrageurs obtain profit.

However, this is not exactly safe and certainly not the most profitable type of arbitrage:

1. A broker can increase the margin requirement for a futures contract, which can reach 100%. If the missing liquidity is not provided, the broker will forcibly liquidate the position;
2. The income that this type of arbitrage can provide is comparable to a bank deposit or short-term bonds.

The possibility of spot-futures arbitrage exists in the cryptocurrency market, and this option differs from the traditional one:

1. Here, the futures contract that the arbitrageur acquires is perpetual. Profit comes from the fact that the price on the spot and futures markets converges. In fact, the yield that takes months to wait for with traditional assets can be obtained on the cryptocurrency market in a day or even faster;
2. In addition to the price difference, the arbitrageur can also profit from the funding rate, which is recalculated every 4 or 8 hours and depends on which orders predominate in the order book – buy or sell. If an arbitrage situation is found where the spot price of an asset is lower than the futures price, long-futures holders will pay short-futures holders.

Using the spot-futures strategy in the crypto market can yield great profits for arbitrageurs while carrying minimal risks: if the asset price goes up on futures, it will also go up on spot, thereby covering all losses. The main thing in this strategy is not to miss the moment when the price on both markets converges and the deal can be closed.

Interest rate arbitrage (carry-trade)

This strategy is tied to deposits in different countries: for example, an investor takes money at 5% per annum in one country and puts it into a savings account in another country, but at 10% per annum.

This version of arbitrage is often used by institutional investors (investment or private pension funds, for example) that have the ability to conduct activities in many countries with the appropriate licenses.

Arbitrage on correlated assets

This is as risky as it is an interesting type of arbitrage: assets of the same type move in the same direction, and if one has increased in price, the second will soon follow. Correlated assets can be:

1. Shares of commodity companies and the corresponding raw materials. If oil prices rise, then the stock price will follow them;
2. Common and preferred shares of the same company;
3. Cryptocurrencies from the same sector: DeFi, GameFi, AI, and others.

But this strategy has a significant disadvantage: there are no guarantees that correlated assets will repeat each other's price movements. Even if this happened on the market before, it does not confirm that the situation will repeat in the future.

Arbitrage schemes in cryptocurrency

As already mentioned, today cryptocurrencies are used much more often in arbitrage due to market inefficiency: digital assets do not have a single center that would set the value of coins on different platforms. Therefore, each crypto exchange, exchanger, or other service independently sets the price for an asset based on its supply and demand on that platform, while also referring to the average market rate.

This is exactly why the cost of cryptocurrencies on different platforms may differ, which creates arbitrage situations and allows you to earn on it. For automatic searching, use an arbitrage screener or an arbitrage scanner.

Futures arbitrage

Futures arbitrage in the crypto market is one of the most popular strategies among crypto traders. A bit about this was mentioned earlier; here we will discuss futures arbitrage in more detail.

The essence of the strategy lies in simultaneous trading on the futures and spot markets to earn on the difference in prices. For example, if BTC is trading at $80,500 on a futures platform and $80,200 on a spot platform, a trader can sell a futures contract and buy BTC on spot. Use a Futures screener to quickly find such opportunities. As soon as the prices converge (which happens almost always), he will lock in the profit.

A feature of the crypto market is the presence of perpetual futures. Such contracts do not have an expiration date but require the payment or receipt of a funding rate, which is formed depending on the market imbalance between buyers and sellers. This rate is recalculated every 8 hours and can be an additional source of income. For example, if funding is positive, a trader who opened a short futures position will receive a payout.

Thus, futures arbitrage allows you to earn:

• On the price difference between futures and spot;
• On the funding rate.

Funding arbitrage

This strategy is oriented exclusively towards obtaining profit through the funding rate. A trader opens opposite positions on two exchanges: for example, long on Binance and short on OKX. If the funding on Binance is positive, he will receive payouts, while the asset price on the two platforms can remain stable or change synchronously, and the arbitrageur will avoid losses due to price changes.

It is important to consider commissions, as well as the technical implementation of the strategy:

1. Maintaining a position requires capital on both platforms;
2. The funding rate can change, and the position may become loss-making;
3. Exchanges can change funding calculation rules or introduce limits.

Nevertheless, with proper configuration and constant monitoring of the funding rate, the strategy can be quite profitable. Track current funding rates to select optimal platforms and calculate potential profit.

Dual Investment strategy

Dual Investment is a relatively new tool that has appeared on exchanges such as Binance and Bybit. It provides an opportunity to earn regardless of the direction of the asset price movement.

The essence of the strategy:

1. The investor selects an asset (e.g., BTC), a direction (buy or sell), the desired yield, and an expiration date;
2. The exchange locks the funds until this date and, upon its arrival, either pays out the yield in the original currency or in an alternative one (e.g., BTC instead of USDT) if the market has reached the specified level.

This is a hybrid of arbitrage and derivatives, with a pre-known yield but a possible change in currency. The risk lies in receiving a currency that the investor did not plan for. For example, if the BTC price rose and you sold a sell option, you will be given BTC instead of USDT.

Advantages of futures arbitrage

1. Crypto futures arbitrage does not require deep market analysis regarding where the price of digital assets will go next;
2. the spot-futures arbitrage strategy involves relatively small risks, as positions are mutually hedged: if a trader suddenly misses the moment of price convergence, the profit on one trade will cover the losses on the other;
3. Arbitrage situations can exist for only a few hours, allowing you to earn several percent on the deposit within a single trading day;
4. Arbitrage is also possible during a sideways market, which allows you to find earning opportunities at any time.

Risks and complexities of futures arbitrage

1. Trading commission can significantly affect arbitrage profit. Each crypto exchange sets its own commissions for transactions, but they can be reduced using exchange tokens and participation in various promotions;
2. No one is immune to sharp price movements: if this happens, a trader may not have time to lock in profit at the moment when the asset price on two markets converges. At the same time, he will not incur losses either, as the positions hedge each other;
3. There is a risk of liquidation of a perpetual futures contract: if there is insufficient collateral in the trader's deposit, the exchange may automatically close the position;
4. It is extremely important to monitor the funding rate conditions: an exchange may change it such that the arbitrage profit is neutralized.

In general, all these risks and complexities can be bypassed by following just two rules:

1. Track trading commissions and funding rates. This will allow you to avoid losses during arbitrage;
2. Arbitrage is not an investment where you can buy an asset and forget about it for a while. An arbitrage deal requires constant monitoring of market conditions, which can change.

How to start arbitrage?

The process of preparing for arbitrage looks as follows:

1. First, you should study the theory: basic knowledge of markets, futures, funding rates, and liquidity. You will find practical examples and detailed analyses in the education / cases section. Without understanding all these terms, engaging in cryptocurrency arbitrage will be extremely problematic;
2. Choose the crypto exchanges you would like to work with, for example, Binance, OKX, or Bybit. See the full list of available platforms in the supported exchanges section;
3. Go through the identity verification procedure on them to have access to all exchange products;
4. Top up your account to open trades;
5. You can search for arbitrage links yourself through various analytical services. However, this takes a lot of time, and even if you manage to find an arbitrage link this way, its lifespan may already be expiring. It is better to use specialized services, such as Arbitragescanner – with its help, you will learn about emerging arbitrage situations immediately after they appear. Moreover, the service allows you to track funding rates and commissions across many cryptocurrency exchanges. Arbitragescanner will take over all routine tasks; you will only have to open deals.

Starting cryptocurrency arbitrage is not as difficult as it might seem at first glance. The main thing is to study the basics and use a specialized service; then arbitrage will become no more difficult than investing.

For working with decentralized exchanges, use the DEX scanner. Additionally, wallet analysis and Sentiment analysis are available for comprehensive market analysis, and crypto API for trading automation.

Conclusion

Arbitrage is a powerful tool for obtaining profit in financial markets, especially in conditions of instability and high volatility. Unlike classic trading, arbitrage involves less dependence on emotions and technical analysis but requires a clear understanding of market mechanisms and a quick reaction. Modern tools, such as the AI Assistant, help optimize trading strategies and increase the efficiency of arbitrage operations.

Properly built arbitrage strategies can become not only a source of additional income but also a full-fledged part of an investment portfolio, especially when it comes to cryptocurrency arbitrage, where many earning opportunities open up.