Risk Management

Risk management in arbitrage is a system of measures aimed at preserving trading capital under any market conditions.

Despite the fact that cryptocurrency arbitrage itself is designed to generate profit with minimal risk, it still involves working with your own capital — which can either be increased or lost.

This section is especially useful for beginners. It does not cover various types of scams in the crypto market, but instead provides an optimal strategy for managing your own funds in arbitrage in order to minimize the risk of capital loss while executing arbitrage trades.

Main Risks in Arbitrage

Execution Risk

The price may change directly during the opening or closing of a position. This can happen due to factors beyond our control, as well as due to our own actions.

Execution risk, as the name suggests, is caused by incorrect position entry or exit.

In general, incorrect order execution leads to slippage. To avoid slippage, orders must be placed correctly, especially when dealing with large amounts. You can read how to properly use order types in the relevant section.

It is also very important to always analyze the order book before opening positions to avoid slippage and understand how much you can buy in a single order without moving the price.

Exchange Risk

In arbitrage, we constantly interact with different exchanges. Sometimes exchanges may consider arbitrage transactions suspicious or abnormal and may suspend withdrawals, restrict trading activity, or even terminate accounts.

To avoid fund loss or freezing, you should always assess exchange-related risks and either keep funds on multiple exchanges or use external wallets.

Moreover, there are many unreliable exchanges in the crypto market that should be avoided. A list of exchanges we trust can be found here.

Transfer Risk

This risk appears when using the spot–spot strategy. The problem arises during transfers between exchanges: the asset price may fall while the transfer is in progress, making the trade unprofitable. To avoid this, you should open a hedging position on the futures market for the same asset. In this case, any losses on the spot market caused by price drops during transfer will be offset by profits on futures.

AND REMEMBER!!!

Arbitrage stops being arbitrage the moment gambling appears.

Strict risk management and discipline are more important than any potential profit. The goal of arbitrage is to preserve capital and grow it steadily, not to maximize profit in a single trade.