Introduction to Futures Arbitrage

What is a Futures Scanner?

Futures Scanner – is a tool designed for arbitrage trading that helps to find price differences (spreads) on spot and futures markets, allowing you to profit from price differences between exchanges.

The key element in futures arbitrage is the price spread, which is the main component of earning income in arbitrage.

The spread is the price difference for the same asset traded on different markets: spot and futures.

In turn, spot trading (spot market) — is a type of trading where assets are bought and sold immediately at the current rate.

Transactions on the spot market occur instantly, and assets immediately transfer to your ownership. In this type of trading, you hold the token itself for speculation.

Futures trading (futures market) – is a type of trading based on the idea of predicting the price movement of an asset in one direction or another (rise or fall).

Futures market transactions are essentially contracts on future price movements. For example, by opening a short position, you are trading on the forecast of a further decrease in the asset's price. In this type of trading, you do not receive the token but earn solely from changes in its price.

Why Arbitrage Occurs Between Futures and Spot Trading

Arbitrage between spot and futures trading occurs for several reasons:

1. Difference in supply and demand

Prices on the spot and futures markets may differ due to different levels of supply and demand at a particular moment, as well as different liquidity on these markets.

2. Influence of news

News about regulation, technological updates, or new partnerships can influence how investors view the future of a cryptocurrency, causing price differences between futures and spot markets.

3. Temporal mismatches

Futures contracts have an expiration date, creating different expectations about future prices. The use of leverage amplifies the influence of these expectations, increasing trading volumes and temporarily disrupting the price between futures and spot markets.

Leverage – is a trading tool that allows you to enter trades for amounts larger than you are trading, using borrowed funds from the exchange. Leverage increases potential returns while also increasing risks.

4. Emotions and volatility

Markets are subject to emotional reactions, especially in volatile markets. Traders using leverage often make more risky decisions, which can temporarily increase the gap between futures and spot prices due to high volatility.

5. Technical factors

Different exchanges may have significant differences in liquidity, leading to changes in prices for spot and futures contracts, especially with high trading volumes.

When the spot market price and the futures market price diverge due to the above factors, an arbitrage opportunity arises, i.e., earning from the price difference between the two markets!

Main Mechanism of Earning in Futures Arbitrage

We support working with multiple exchanges, including centralized ones with spot trading and futures contracts, as well as decentralized platforms, providing you with the opportunity to effectively use types of futures arbitrage trading.

Among them:

1. Spot + Futures

2. Futures + Futures

3. Futures + Spot

We will discuss each type of futures arbitrage in detail in separate educational materials.

Now our task for you is to understand the main earning mechanism.

For example, we have a coin pair: Spot + Futures:

Where on spot trading we purchase the asset cheaper:

And on futures we take a short position at a higher price:

The price difference between these different types of trading (Figure 3 and Figure 4) is our profit.

In simpler terms, when our short position equals the spot trading rate, we exit the trade, taking the profit we earned.

NOTE: Prices can align negatively for the spot. For example, if you opened a spot position at $0.9 and a short at $1, and prices aligned at $0.8, in this case, you would incur a loss on the spot position and a profit on the futures position, which may compensate or even exceed the loss on the pair, depending on the market situation.

The price between spot and futures equalizes because market makers and exchanges are interested in maintaining balance. To achieve this, a funding rate is used. It motivates traders in long or short positions to close their positions, equalizing prices.

RECOMMENDATION: if the question arises: what to do if the price does not equalize? You can always exit with a slight reduction from your profit. For example, if you are already up by 5%, but the price has not yet equalized, you can close the position and lock in a 3% profit instead of waiting for the price to fully equalize.

This type of trading combines an additional earning mechanism – the accrual of the funding rate. Also known as the funding rate, it is usually accrued every 8 hours. The latter depends on the exchange.

Funding rate – these are percentage payments between futures market participants, which usually occur every 8 hours.

NOTE: Exchanges may change the funding rate accrual time depending on the asset's volatility. That is, it could be 6 hours or less. But most often, it is 8 hours. Keep this in mind in your work.

If the funding rate is positive and you forecast a price decrease (opening a short position), you receive a payment from those who forecast a price increase (long position). If the funding rate is negative, those in long positions receive a payment from short positions.

The key indicator of the pair's effectiveness is Overall Profit

Overall Profit represents the total profit that can be obtained both from the price spread and from the funding rate.

Futures Scanner Interface

The futures scanner interface consists of two blocks:

1. Flexible filter system

It provides wide opportunities for setting up the display of arbitrage pairs

2. Results table

Work area that combines personalization elements and accounts for your individual search filters

Futures Scanner Filter System

The filter system consists of basic filters, as well as advanced ones:

Basic filters include:

[1] Tracked exchanges

This filter allows you to display a full list of exchanges where you can simultaneously buy and sell assets. Using it, you will see all available spreads for the specified platforms.

[2] Whitelist of currencies

With this filter, you can limit the display of spreads to only those currencies that interest you. By specifying specific assets separated by commas, you will see spreads only for these tokens in the results field.

[3] Blacklist of currencies

This filter is the opposite of the whitelist. It excludes the display of spreads for selected cryptocurrencies. The latter is very convenient if some coins are not interesting to you or seem too risky.

[4] Minimal transaction amount, $

This field sets the minimum transaction amount in dollars, starting from which spreads are displayed. This allows you to exclude trades with small volumes.

[5] Minimal profit, %

This filter shows only those trading pairs where the price difference (spread) is greater than the specified percentage. For example, if you specify 1%, only those pairs where you can earn more than 1% on the price difference, including funding, will be displayed.

[6] Maximal profit, %

With this filter, you can hide pairs where the price difference is too large, which may be associated with high risk or instability. For example, if you specify 10%, pairs with income above 10% will not be shown.

Among the advanced filters, you can find:

[1] Exchanges for buying

With this filter, you can select specific exchanges where you plan to buy assets. This helps you focus on the platforms that interest you.

[2] Exchanges for selling

Similar to the previous filter [1], here you can select exchanges where sales will occur, excluding unnecessary trading platforms.

[3] Strategy

This filter allows you to choose the type of arbitrage: «Futures + Futures», «Futures + Spot», «Spot + Futures». This allows you to select a suitable strategy for working with futures and spot markets.

[4] Minimal lifetime, sec.

With this filter, you can set the minimum lifetime of the spread in seconds. This is important to have time to react to profitable pairs.

[5] Maximum lifetime, sec.

Similar to the previous filter [5], here you can set the maximum lifetime of the spread in seconds, after which the trade becomes irrelevant.

[6] Minimal funding profit, %

The filter allows you to set the minimum percentage of funding profit (funding rate), so that only those pairs where the funding percentage is not lower than the specified value are displayed.

[7] Maximum funding profit, %

Allows you to exclude pairs with funding profit above the specified percentage, eliminating more risky trades

[8] Minimal price profit, %

This filter displays only those pairs where the profit from the price is higher than the specified value. This allows you to focus on more profitable trades.

[9] Maximum price profit, %

This filter excludes pairs with profit above the specified percentage. The latter allows you to avoid high-risk trades.

After setting the appropriate filters, do not forget to save them to a template so that you do not waste your time filling in all the specified fields again:

Come up with a name for your filter search and click save:

Your saved filters, as well as ready-made solutions that you can also review, are stored in the Templates tab:

How to fill in filters for different futures arbitrage strategies will be discussed in a separate educational material.

NOTE: Our service shows a large number of arbitrage pairs, ignoring filters can overload your browser's work, as such data takes up a lot of memory. In cases where the market, for example, experiences volatility, more arbitrage opportunities arise, increasing the load on your device. Keep this in mind in your work.

Futures Scanner Results Table

The second block of the futures scanner interface – is the results table.

It includes the following columns:

[1] Currency pair

Shows the asset for which a spread was found.

[2] Buy exchange

Shows the exchange for buying, a direct link to the platform, and the cost of buying the asset. If the purchase is on futures, there will be a corresponding indication in parentheses.

[3] Sell exchange

Displays the exchange where you can sell the asset, a link to the platform, and the selling price. If the sale is on futures, there will also be a corresponding indication in parentheses.

[4] Volume

The amount in tokens and dollars on which you can make a trade.

[5] Overall profit

Total profit from the trade based on price differences and funding.

[6] Prices spread profit

This is the percentage of profit that can be obtained from the price difference between buying and selling, excluding funding profit.

[7] Funding rate profit

Percentage of income or loss from the funding rate.

[8] Buy funding rate

The rate that needs to be paid or received on the exchange when buying.

[9] Time for buy funding rate

Shows how much time is left until the next funding rate accrual on the exchange where the futures contract was purchased.

[10] Sell funding rate

The rate that needs to be paid or received on the exchange when selling.

[11] Time for sell funding rate

Shows how much time is left until the next accrual of the rate on the exchange for selling futures.

[12] Lifetime

This is the time that shows how long the arbitrage pair exists. The higher the pair's time, the less profitable the trade and the higher the risk.

You can sort the parameters in the results table in descending or ascending order. For example, if you want to see currency pairs by the largest overall profit, click on the arrow icon next to the column parameter name:

You can also choose the speed of the results table update:

From 5 to 15 seconds, or turn it off to initially familiarize yourself with the work area:

RECOMMENDATION: time – is your main ally, the more frequently your pairs update, the faster your reaction to a profitable spread, and thus your earnings. Use the 5-second update time after you have thoroughly familiarized yourself with the work area.

Next to the function to update the time of displaying pairs, there is a gear that allows you to personalize the results table:

You will be able to arrange the columns as you wish, changing their position. In addition, you can remove those columns that you consider redundant or unnecessary by clicking on the eye icon:

Capabilities and Advantages of the Futures Scanner

We strive to be the market leader, so we continue to improve and are ready to share the capabilities and advantages of our product.

That is why we offer a range of key capabilities and advantages of our product, including:

• Wide range of exchanges

The futures scanner supports many exchanges for: spot trading (CEX), perpetual futures (CEX), DEX, DEX-futures. This allows you to find arbitrage opportunities between different platforms, expanding arbitrage possibilities.

• Monitoring spot and futures prices

Our product tracks the price difference for the same assets on futures and spot markets. This provides the opportunity to earn from price differences, applying various strategies.

• Display of funding rates

The scanner provides data on funding rates – percentage accruals every 4 or 8 hours. This approach allows you to use funding rate arbitrage as an additional earning mechanism.

• Flexible search filters

A wide list of filters allows you to set parameters for searching the most profitable arbitrage situations, saving your time and increasing the efficiency of the service.

• Customizable work area

The customizable work area allows you to adapt the display of arbitrage opportunities to your individual needs, ensuring convenience and efficiency in finding profitable trades.

• High throughput

The scanner can process up to several thousand arbitrage situations simultaneously. This means you will be the first to know about the availability of an arbitrage opportunity that will help you earn.

• Exchange of strategies and experience

Our service – is not just earning tools, but also a useful and up-to-date knowledge base aimed at transferring the best experience and knowledge to our users. By helping you improve your trading approaches, we confirm our status as a market leader.

Conclusions from the Introductory Part of the Training

In this introductory article, we discussed:

1. What a futures scanner is;

2. Why arbitrage pairs arise between spot and futures trading;

3. The main earning mechanism that underlies this product;

4. The futures scanner interface, which combines flexible filters and a customizable work area;

5. The capabilities and advantages of our product.

Thus, the futures scanner – is a unique solution that helps traders effectively identify arbitrage opportunities between different markets and maximize their potential. The simplicity of the interface, flexible filters, and customizable work area make it a versatile and convenient tool for trading.

Our team continues to develop innovative products that meet the challenges of the modern market, confirming our leadership in the industry.

NOTE: please observe the risks when trading. Practice on demo accounts before trading with real money.

Key terms from this article:

1. Futures Scanner – a tool for arbitrage trading, helps find price differences on spot and futures markets.

2. Spread – the price difference for the same asset traded on different markets (spot and futures).

3. Spot Trading – buying and selling assets at the current rate with instant transfer of assets.

4. Futures Trading – trading contracts on the future movement of an asset's price (e.g., short positions when forecasting a price decrease).

5. Leverage – a trading tool that allows you to enter trades for amounts larger than your own funds using borrowed funds.

6. Arbitrage – earning from the price difference between spot and futures markets.

7. Funding Rate (Funding Rate) – percentage payments between futures market participants, accrued every 4 or 8 hours.

8. Overall Profit (Overall Profit) – total profit from an arbitrage trade, including income from the price spread and funding rate.

9. Futures Scanner Filters – tools for setting up the display of arbitrage pairs (e.g., minimum/maximum profit, spread lifetime, exchanges for buying and selling).

10. Centralized Exchange (CEX) – a platform for trading assets managed by a central operator that ensures the security of transactions and storage of funds.

11. DEX (Decentralized Exchange) – a trading platform that does not require a centralized intermediary.