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This is the point of the strategy. Whenever they diverge for whatever reason, assume it’s makeshift and that they’ll reconverge. Make money converging them.
Exchange 1: 1000 Exchange Two: 900
You sell 1 of exchange 1 and buy 1 of exchange Two.
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Screenplay 1: Exchange Two rises to meet exchange 1, exchange 1 stays stable. You make $100 spil you bought exchange Two at 900 and its price is now 1000. You lose nothing on exchange 1 since the price hasn’t switched.
Script Two: Exchange 1 falls to meet exchange Two, exchange Two stays stable. You make $100 spil you sold exchange 1 at 1000 and its price is now 900. You lose nothing on exchange Two since the price hasn’t switched.
Screenplay Trio: Exchange 1 rises to 1100 and exchange Two rises to meet it. You make $200 spil you bought exchange Two at 900 and its price is now 1100. You lose $100 spil you sold exchange 1 at 1000 and its price is now 1100. The ultimate profit is $100.
The significant thing is that you trade both sides.
One need to also consider order books not just the price difference (I also have a chart! [Two]). Price difference may be 10% but there may be 0.01BTC ter order book within that difference. Or if you just look at the price of the last trade, there may actually be nothing te order book to arbitrage against.
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There may be some window to make money when there are truly big price switches and basically those who do the arbitrage run out of money on one side (fiat is slow to stir). But then you have to overeenkomst with high volatility.
So, there is risk with this strategy. One of the exchanges could fail and you lose everything you have on that exchange.
An exchange can be permanently cheaper if withdrawals are limited, trust is lower, or some other effect reduces trader confidence ter the exchange.
Major events like hacks are also imo likely to cause this software to stumble. Are there safety features to make sure it’ll zekering trading if something reasonably unusual is happening?
The long/brief mechanism overcomes the market risk (i.e. risk of losing money due to market moves) and reduces the slippage risk, but not the other risks, like technical issues on an exchange.
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Arbitrage is spil much about volume spil it is about differences ter price. Volume is something bitcoin markets do not indeed have (compared to most other financial markets).
Are there any other examples of trading systems like this that are good to read for someone with a passing rente ter building plain trading systems?
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I found that automated triangular (and Four, Five. ) arbitrage wasgoed possible te the past, mainly due to fee-raking exchanges providing superfluous instruments. Opportunities were usually puny, counterparty risk and fees usually large.
There also seemed to usually be someone else’s bots doing the same thing, albeit from time to time welgevoeglijk sized trades appeared ter slow/extraneous markets. Exploiting thesis mechanically eventually results te humans looking for the source of the arbitrage, and even if there aren’t challenging bots running it won’t last long.
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Arbitrage based on first-moving markets and slower moving markets wasgoed pretty common, and some people seemed to have automated it.
And of course the market making robots run by the exchanges are the most joy to see. Lots of times they trigger the crossover bot traders’ algorithms on purpose.
This has nothing to do with it being a market-neutral strategy or not. All code has bugs ter it, exchanges have hiccups, quotes from many exchanges are notoriously wonky, programs freeze, Internet connections go down, users fat finger inputs etc. This needs a verdadero risk system built into it.
Complaining about bad gegevens te that situation is like complaining that an admin could klapper the power switch.
Or maybe I’ve totally misunderstood the purpose of this software.
1) The user isn’t always the one providing user input.
Two) When the user does provide input, the user isn’t always brainy.
Trio) Users do things that you never would have conceived.
Unsanitized system() calls are even worse than leaving your system broad open to a sql inection attack.