Statistical Arbitrage in Cryptocurrencies: Detailed Guide

Definition 

Statistical arbitrage – is a trading strategy that allows you to profit from price discrepancies in related assets or the same asset but on different platforms. This approach is based on the idea that the market occasionally misprices assets and trading instruments, and these discrepancies can be exploited using statistical methods. Traders engaged in statistical arbitrage analyze historical data and use advanced algorithms to identify market patterns that may indicate price discrepancies.

Types of Statistical Arbitrage

There are many types of statistical arbitrage created to utilize various opportunities. While some types have been replaced by a more efficient market, other opportunities have emerged in their place. 

Risk Arbitrage

Risk arbitrage – is a form of statistical arbitrage that allows you to profit from situations related to mergers. Investors buy shares of the target company and (if it is a stock deal) simultaneously open a short position in the shares of the acquiring company. As a result, profit is made from the difference between the buyout price and the market price.

Unlike traditional statistical arbitrage, risk arbitrage involves taking on certain risks. The biggest risk is that the merger will fail and the target company's shares will fall to the level before the merger. Another risk is related to the time value of money. Mergers that take a long time to complete can reduce the annual return for investors.

Volatility Arbitrage

Here, traders analyze the discrepancy between the implied volatility of cryptocurrency options and their expected realized volatility. For example, if the market underestimates the volatility of Bitcoin, you can buy an option and hedge the position with the underlying asset, creating a delta-neutral portfolio. Profit is achieved through re-hedging when the expected volatility is realized.

This type of arbitrage is relevant on derivative cryptocurrency markets (e.g., Binance Futures or Deribit) and requires the use of complex calculations and volatility forecasts.

Mean Reversion Arbitrage

This strategy assumes that the price of a cryptocurrency or pair tends to revert to the mean. Traders use statistical models to determine the deviation of the current price from the historical average. For example, if the LTC/BTC price exceeds the norm, you can open a short position on LTC and a long position on BTC, expecting a return to the mean level.

Applying this strategy requires powerful data analysis tools and the ability to identify stable patterns. It is particularly useful in volatile cryptocurrency markets, where prices often deviate from equilibrium due to their speculative nature.

Advantages of Statistical Arbitrage

Two main advantages of statistical arbitrage can be highlighted: 

• Improved market efficiency. Statistical arbitrage contributes to price alignment and improved liquidity in markets. When traders use arbitrage strategies, they eliminate price inefficiencies. This leads to more stable markets and more fairly valued cryptocurrencies. For example, arbitrageurs help eliminate temporary price discrepancies between closely related assets, ensuring their smooth movement towards equilibrium;

• Ability to profit without fundamental changes. Statistical arbitrage allows you to extract profit from market movements that are not related to new information or changes in fundamental factors. Often, such movements are caused by the liquidity needs of large institutional players, creating short-term opportunities for traders. Thus, arbitrageurs earn income from temporary imbalances rather than from forecasting market trends, reducing dependence on macroeconomic events and news.

Tools for Statistical Arbitrage

If previously only highly educated and wealthy individuals could engage in statistical arbitrage, as arbitrage opportunities could not be found easily, today this injustice has been rectified by Arbitragescanner – a service for finding arbitrage opportunities among cryptocurrencies. Today, Arbitragescanner is a market leader, providing its users with only proven tools for finding profitable opportunities. 

From the main functionality of ArbitrageScanner, various options for finding profitable opportunities can be highlighted. The arbitrage screener in online mode will select opportunities based on the given parameters. Since the service monitors many CEX and DEX platforms, the required cryptocurrency opportunity will definitely be found. No other service shows the price difference on DEX exchanges except ArbitrageScanner - and only here can you get really large spreads.

It is also worth noting the speed of notifications about the spread between platforms. Many services send information about the opportunity when its relevance is already fading, but not Arbitragescanner. Users of the service receive all current information in real-time, which means you can catch the cryptocurrency opportunity as soon as you receive a notification in the bot. 

If ordinary opportunities seem unprofitable to you, you can always use the futures screener. Arbitragescanner was the first to introduce the concept of "futures arbitrage": service clients have access to opportunities between spot + futures. The essence of this approach to arbitrage is that you buy a token on the spot market and open a short position with 1x leverage on futures, but at a higher cost. Then, you wait for the prices to converge and close the deal.

What You Need to Start

To start making a profit, you need: 

1. Purchase a subscription to Arbitragescanner. There you will find not only profitable opportunities but also many tools for blockchain analysis, as well as the best arbitrage community on Telegram; 

2. Exchange rubles for USDT, and then transfer them to the exchanges where you plan to catch opportunities; 

3. Arbitrate. 

Even if you have no experience in cryptocurrency arbitrage, Arbitragescanner provides subscribers with many educational materials, some of which are available on the service's YouTube channel. 

Conclusion

Statistical arbitrage emerged in the 1980s and has undergone some changes over time. What has not changed is the profitability of using this strategy: it remains high today. Moreover, it has become much simpler: the tools of Arbitragescanner allow you to find opportunities in an automated mode, significantly reducing labor intensity and increasing the possibilities for earning on cryptocurrencies!