Pionex Spot-Futures Arbitrage Bot

✨ Product update on 14th, March 2021 – Personal cap for the arbitrage has been increased to 100k USDT. Pionex now charges 10% of the total profit from arbitrage bot and set up arbitrage SAFU program.

✨ Product update on April 2021 – Auto-deleverage algorithm integrated which make the arbitrage bot more robust and lower risk under the bullish market.

Arbitrage Opportunities In the Volatile Crypto Market

The highly volatile market in cryptocurrency gives most investors a high-risk and high-return investment impression. It’s normal to see a coin surge up to 20% and then head to a 20% correction on the next day. So lots of people are using Arbitrage bot to catch these volatile. In addition to the spot market, lots of exchanges also offer perpetual futures contracts that allow traders to use up to 125x leverage, making the cryptocurrency market even more volatile.

On the other hand, the inefficiencies between each market give us plenty of opportunities to arbitrage. It’s easy to reach 15%~50% APR with arbitrage strategies, and I’m going to show you how to arbitrage from these inefficiencies.

The results looks amazing huh?

Before talking about how to seize the arbitrage opportunity, let me introduce the fundamental of perpetual futures contracts first.

What is Perpetual Futures Contracts?

Unlike traditional futures, perpetual futures contracts don’t have an expiration date, so that traders can trade perpetual futures just like spot trading. That’s one of the main reason perpetual futures contracts is so popular in the crypto community.

Typically, traditional futures contracts settle on a monthly or quarterly basis. At settlement, the contract price converges with the spot price, and all open positions expire.

Since perpetual futures contracts never settle in the traditional sense, exchanges need a mechanism to ensure that futures prices and index prices converge on a regular basis. This mechanism is also known as Funding Rate.

The funding rate plays an essential role in the arbitrage opportunity that we’re going to discuss in the next section.

What is the Funding Rate

The funding rate ensures that futures prices and index prices converge regularly.

So when a perpetual futures contract is trading on a premium (higher than the spot markets), long positions have to pay shorts due to a positive funding rate. In contrast, short positions pay longs while the futures price is trading below the index price.

The Index Price consists of the average price of an asset, according to major spot markets and their relative trading volume.

The exchanges do not charge the funding fee. It’s paid peer-to-peer.

Most of the investors in the crypto market like to hold a long position rather than a short position, which means traders with long positions need to pay funding rates to those who have a short position.

So here’s the arbitrage opportunity. We can hold a short position in the perpetual futures market and buy the same amount in the spot market, hedging our total investment. Our investment won’t be affected by the market fluctuation due to the market-neutral position but receive funding rates with our short position in the perpetual futures contracts.

What is Spot-Futures Arbitrage Strategy?

To sum up, hold a short position in the perpetual futures market while holding the same amount of position in the spot market. Arbitrage with a market-neutral position and receive the funding rate every 8 hours.

The funding rate comprises two components: the interest rate and the premium. The interest rate fixed at 0.01% per 8 hours, and the premium varies according to the price difference between the perpetual contract and mark price.

According to the historical data of the ETH funding rate on Binance, the rate has always been positive in the last 6 months. And it’s higher when the price surge in the following chart. If we can receive a 0.2% funding rate per day, the performance for this arbitrage would be 36.5% APR!

With the historical data, it’s steady and almost risk-free to arbitrage from the funding rate. Next, let’s discuss how to execute the arbitrage by ourselves.

Tutorial for the Spot-Futures Arbitrage

Let’s say we have 10000 USDT for the spot-futures arbitrage while bitcoin’s price is 10000 USDT. Here’s how we’re going to do:

  1. Transfer 5000 USDT to the futures account and the rest 5000 USDT to the trading account.
  2. Buy 0.5 BTC (5000USDT) in the spot market and short 0.5 BTC in the perpetual futures market with your 5000 USDT
  3. If the current funding rate is 0.05% right before the charges, then you’ll get 2.5 USDT.
    0.5 * 10000 * 0.05% = 2.5 USDT
  4. If the funding rate remains at 0.05%, we can receive 3 times a day, which means it’s 27.375% APR
    2.5 * 3 * 365 = 2737.5 USDT
    2737.5 / 10000 * 100% = 27.375%

To increase the annualized return, let’s take advantage of the leverage in the perpetual futures. If we hold the short position with 2x leverage, then we’re able to buy 0.6666 BTC with 6666 USDT while short 0.6666 BTC with 3333 in the perpetual futures market.

We’ll receive 33% more funding fee (3.333 USDT) compared to 1x leverage
0.666 * 10000 * 0.05% = 3.333 USDT

The performance increases to 36.46% APR with 2x leverage; 41.0625% APR with 3x leverage!

Besides using higher leverage with your short position and checking the list for a coin with a higher funding rate, the price difference between the futures price and index price should also be considered.

The Price gap between futures and spot price.

The price gap is not always a fixed number between futures and spot prices. It’ll result in some profit if the gap is lower when you’re about to stop the bot, and suffer from some losses if the gap is higher.

But it’s not that much, which you can cover that loss within 2~3 funding rate income. If you take care of the price gap, you might earn some profit from the price gap.

  • Don’t start arbitrage if the price gap is negative.
  • Finish your arbitrage strategy and close your positions when the gap is lower or negative.
  • Normally, the gap is floating between -1% and 1% most of the time.

Spot-futures arbitrage is a simple strategy that traders could do it manually, but it’s better to use a tool for opening positions and closing positions due to the volatility.

What are the risks for Arbitrage Bot?

There’re some risks to perform spot-futures arbitrage manually that you should need to know in advance.

  1. You’re not able to decrease your position in the spot market while the auto-deleveraged happen to your futures position.
  2. The price surge rapidly and you got liquidated on your short position cause you’re not able to close your futures position in advance.

The above two examples show us how would our market-neutral position got broken under particular market conditions. To eliminate the above risks, Pionex provides a bot for spot-futures arbitrage. Here’s how would the bot deal with the potential risks:

  1. The bot will detect both your position in the spot and futures market and maintain a market-neutral position even the auto-deleveraged (ADL) happened.
  2. The bot will close your futures position 5% before the liquidation price. So that you won’t be liquidated and pay for the liquidation fee.

Pionex Arbitrage Bot

Pionex charges 10% of the profit from the spot-futures arbitrage bot. Half of the profit will be put into the Arbitrage SAFU fund for the arbitrage bot users. More details in the announcement.

Step 1. Open pionex.com and log in to your account, click on the Spot-Futures arbitrage bot on the right side of the page

Step 2. Select the target coin and preferred leverage for the arbitrage. Click the drop-down button next to the coin to lead you to the list sorted by the current funding rate.

Step 3. Fill in the investment amount and click create bot. It’ll automatically transfer some of your funds to your futures account and create a position in the spot and futures market.

Step 4. If you want to close the bot, just click the shutdown button on the right top of the bot. It’ll close the position and return all your investment in USDT.

5 Tips for using a Crypto Arbitrage Bot

  1. Don’t switch between coins too often. Please remember that you’ll have some trading fee cost when you started and closed the bot.
  2. As long as the funding rate stays positive, keep the bot active for at least 1~2 weeks. But you can still shut it down anytime you want.
  3. One arbitrage bot with one coin at a time. You’re free to top up more investment or take some out anytime.
  4. Don’t put all your eggs in one basket. Arbitrage 2~3 coins at the same time would be better.
  5. It’s better to start the bot while the price gap is higher; shut down the bot while the price gap is lower or negative.
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172 Comments

  1. Feel free to let me know your thought on this bot! Hope you all enjoy this arbitrage bot 🙂

    • Hi, this is a great idea and a very useful bot. I have been using it for a while but I have a suggestion. why dont you guys also had huobi and okex? so we can also farm there as well.

    • Dave, se eu colocar um saldo tipo 10mil usd que coloquei eu consigo ter tipo 3 ou 4 robos rodando em pares diferentes ao mesmo tempo? Porque eles trabalham no sistema SPOT/Futures correto. Outra dúvida, se eu abrir por engano quando está negativo o robo, influencia porque eu sempre vou pagar o funding mesmo que eu deixe ele rodando por semanas ou, nao influencia se eu deixar por um bom tempo?

      • Yes, you can have multiple bots running with different trading pairs at the same time.
        Some alt-coins might have negative funding rate during the very bearish market. So if you’re looking for a more steady way, then stick with ETH with 2x leverage. That’s my favorite one.
        GOOGLE TRANSLATE
        Sim, você pode ter vários bots operando com diferentes pares de negociação ao mesmo tempo.
        Algumas moedas alternativas podem ter uma taxa de financiamento negativa durante o mercado de baixa. Portanto, se você está procurando um caminho mais estável, use o ETH com alavancagem 2x. Esse é o meu favorito.

    • Nice info ! I really enjoyed the tutorial! Im doing a youtube video in spanish explaining all that value tutorial!
      Best regards from Uruguay 😃👋

    • Hi Dave, i recently closed a bot however my profits were not returned to me in BNB, can you let me know why?

      • Hello Dom,
        The arbitrage bot counts the profit in USDT and you can also use USDT for this bot. So there won’t be any BNB in profit during the whole procedure.

    • Hey Dave, Im new I have 10.00 in ethereum I transferred to set up a bot. do i need more or is there something i could do with it

    • Hello Dave. What settings and method would you recommend if one were to do XRP instead of ETH?

    • Dave:
      Thank you for the excellent blog and overview of the futures bot. I manage a Crypto Fund which looks to take advantage of various arbitrage opportunities. I am interested in depolying a % of our assets into your Arbitrage bot, but and trying to run some calculations based on historical data.
      If we use your example in your overview which shows a 27% return @ 1X and 36% return @ 2X, I am trying to calculate what the estimated return would be if I reinvested all of the 50% of the profits back into the bot if I release profits every 7 days. Can I add funds to the current bot or do I have to start a new one? If I can add to the existing bot, can I have multiple bots running the same pair, i.e.: If I am running ETH/USDT and I am unable to add funds to the existing bot, and want to release profits every 7 days, can I can new bots with the same pairs? Using your example of $3.33 USDT per 8 hour cycle or, $9.99 per day times 7 or $69.93/ week, I will be adding 50% or $34.96 back into the bot which would increase my investment to $10,034.96, then continue to compound weekly. I guess this is a long winded way of asking how difficult it is to add profits to the bot as I will be deploying a lot more than $10,000.
      Thanks,
      Bob

  2. Actually its more profitable and Risk free than others trading options i will give it 100 of 💯

  3. Thanks Dave, understand this is “extremely low risk”.
    Can you specify what are the risks? You mention data is based on the last 6 months – which is when we have had a bull market and thus more long positions (and higher funding rates to profit on). What would happen in bear / crashing market with a lot of short positions? Please explain the worst case scenario.
    Also I prefer to start the bot and not look at it for a few weeks – is that the right strategy or do I have to monitor daily ?

    • Stick with ETH and the risk should be the lowest.
      Here are some risks for the abnormal situations:
      1. Binance broker system shut down or delay, which let the bot not able to close the position in time.
      2. Price suddenly spike and then fall back, all happen within several seconds. The short position got liquidated and didn’t sell the spot at the same price.
      Stay with the big cap coin and you could avoid and minimize the situation above.
      If you don’t want to check it for weeks, then I recommend ETH arbitrage bot with 2x leverage. Or you could also try grid trading bot for BTC with a wide price range. Let’s say 10,000 ~ 100,000 for bitcoin grid bot.

      • Hello Dave,
        I wanna ask you about spot futures arbitrage bot.
        What will happen to my investment,if binance broker system shutdown like today???Please explain the worst case scenario.
        As you said,Price suddenly spike and then fall back, all happen within several seconds. The short position got liquidated and didn’t sell the spot at the same price.
        Do I lost all my investment??or pionex will recovers all my lost because of this shutdown system???

        • Hello Roy,
          The worst case, if the coin spike from $10 to $20 in few seconds and then fall back to $10 in another few seconds.
          The short position got liquidated but the bot doesn’t have enough time or liquidity to sell all your spot at the same price before go back to $10.
          In terms of the 19th May, that day all the coins were dropping. But the arbitrage won’t get liquidated because you’re holding short position not long position on the futures side.
          And in the future, if there’s any black-swan incident, you can check Pionex arbitrage SAFU fund. There’s no guarantee that you’re risk-free and won’t lose any money with this bot. Nothing risk-free all over the world.

  4. Hi Dave, so if I close the bot, I will get $10,032.4163 based on the example above?

  5. There is a writing in article, i want to know more detail 🙂
    How? While closing bot?

    If you take care of the price gap, you might earn some profit from the price gap.

    • If the price gap is higher than you create the bot, then you’ll have some loss. If the price gap is lower, then you’ll have some profit.
      But this is not a big deal if you let the bot last for weeks. It’s not that much compared to your arbitrage profit.

      • Hi Dave,
        How can I monitor the price gap on a bot already running? I can see the gap only when I start a new bot, bot not on a running arbitrage bot.

        • Why do you want to monitor the price gap?
          By clicking the withdraw investment in the advanced setting, you can see the current price gap.

          • Simply because I would like to follow your advice. “…shut down the bot while the price gap is lower or negative.”.
            I will look in the withdraw section. Thanks

      • Hi dave if would it be good if i use the “withdraw investment” option on spot futures arbitrage and put it on some coin with higher funding rate? And put it back on my original bot after getting the funding rate on other coins? Thanks

  6. Is this better than a grid bot for someone’s first bot?
    Also what is a good starting amount?

    • Yes, it’s very simple and will produce a steady income. You can start with a small amount, 100-200USDT, but anything over 1000USDT on a big coin like ETH BTC BNB etc will produce a nice daily income that you can reinvest to compound gains.
      Grid-bots can be great to produce a higher average return but you cannot compound gains unless you close the bot and collect the profits then restart.
      Spot-Futures arbitrage from my experience can be thought of as similar to a long term compound interest savings account.
      Check the bot each few days and reinvest the profits. If run concurrently with a grid bot you will have more profits to accumulate and benefit from.

  7. Quick question:
    Are the profits that you made with this bot automatically reinvested in the next arbitrage ? Want to take advantage of compounding.

    • It’s not compounded.

      • so its better to release the profit and do something with it?

        • You can release it every week and take it to reinvest into in the bot or buy other coins. It’s up to you 🙂

          • Hi Dave, thanks for the tip, and I waited one week now after starting a spot futures arbitrage bot, but my releasable profit still shows “0”. Can you please explain why?

          • Funding fee added to your futures account as your margin, so if the price rise (which means spot in profit and futures in loss) then you can’t release the profit. If you want to do that, you can use withdraw investment instead.
            But don’t worry, either case won’t affect your “real” profit.

  8. Withdrawing portion of investment or closing the bot sometimes takes ages. I accidentally pressed the confirm button while testing around in withdraw investment section and it took very long time and i can’t seem to cancel it 🙁

  9. Hello,
    Can I start Grid trading Bot with $60 of BTC? with this recommendations.
    (try grid trading bot for BTC with a wide price range. Let’s say 10,000 ~ 100,000 for bitcoin grid bot.)

  10. Hi Dave,
    just a stupid question: the max sum I can lose is what I invested in it, correct?
    So if I invested 500$ that could be my max lost, right?
    Thanks
    Giacomo

    • Hello Giacomo,
      It’s not likely to lose all of your funds with arbitrage. You hold a spot position and a short position in perp market to hedge the risks.

  11. Do you have any resources/document where we can find the APRs for each coin or do we have to be logged in to Pionex in order to do this?

  12. Hi Dave, besides eth, which other coins would you recommend to run the bot
    Hi Dave, besides eth, which other coins would you recommend to run the bot

    Questions

    • ETH is the most stable one for arbitrage. You can still use small funds to arbitrage with some of the high funding rate’s coin.

  13. What is the minimum investment to start with for arbitrage bot?

  14. Hi,
    What does the “price gap control” in the advanced settings do?
    I see that it’s set to -0.1% by default. Does that mean when price gap hits -0.1%, the bot will shut down automatically and secure the profit?
    Thanks

    • No, it control the price gap between spot and perp when you create or shut down the bot.
      Stay with the default setting first and keep an eye on the price gap. One tip that I can share with you, if the price gap fluctuates between 0.2~0.5% while you create the bot, then set the price gap as 0.45% or 0.5% in this case.
      Hope this helps!

      • Hi Dave,
        Can you explain why you give that tip? What if price gap is between 0.1-0.2? What price gap control should I set it at? ETH seems to be fluctuating around that price gap range of 0.1-0.2. Is it still good to arbitrage with ETH?

        • If you’re creating the bot or adding investment, then make it near 0.2%
          Because we want to open the bot at a higher gap and cancel the bot at a lower gap. While it might takes longer to create the bot.

  15. Hi Dave,
    Thank you very much for the blog and answering all our questions.
    Can you please explain the Advanced Settings Unfold and Fold.
    And the best/ideal Price gap control (%) settings to have if we choose to use the settings at 1x, 2x and 3x leverages?
    Cheers,
    G

    • Hello G,
      Higher leverage, higher APR for your arbitrage bot. I recommend 2x for ETH.
      Price control depends on the current market. One tip that I can share with you, if the price gap fluctuates between 0.2~0.5% while you create the bot, then set the price gap as 0.45% or 0.5% in this case.

  16. Can you explain the pros and cons of changing the price gap control when setting up the bot? What is it and how does it work?

    • If you’re doing it for long-term, then the affect of the price gap won’t be a big deal. One tip that I can share with you, if the price gap fluctuates between 0.2~0.5% while you create the bot, then set the price gap as 0.45% or 0.5% in this case.
      It helps you to create your position at a higher gap, but cause the gap restriction, the time for the bot to finish the position might be longer but don’t worry about that.

  17. Teorically, would it be possible to open a long position in the weekly (or monthly) futures market instead of spot market? What do you think? We,ve got more leverage, but worst spread (that lose would be reduced increasing the position 50% in each monthly and perpetual markets.

    • It’s more complicated than spot + perp, when using monthly futures instead of spot, the price gap will eat most of your profit.

  18. What is margin? Do you want to add (cover) the margin?

  19. Hi.
    I want to run arbitrage bot for about 1-2 months.
    Do I need to worry about price gap?
    Let’s say if I start bot with 0.1% price gap. Does it matter in 1-2 months duration of bot?

    • You don’t need to worry about the unrealized profit. Make it active for longer period and it’ll be covered by the funding fee really soon.
      It’s from the price difference of opening and closing the bot.

      • What determines the unrealized profit Dave? It keeps rising (in negative value) and offsets most of the arbitrage profit.
        So my total profit isn’t as high as I’m expecting even though the funding rates show a 80% APR

        • Mostly the price gap. If it’s bigger than you create the bot, then it will have unrealized loss. But don’t worry about that, it won’t keep increasing. Keep it for few more days you’ll see what I mean.

  20. Hi.
    Since when I started the arbitrage bot. The Unrealized profit remain negative most of the time.
    Do I need to worry about the negative Unrealized profit?
    Please explain what is the Unrealized profit and how it effect our earnings in arbitrage bot.
    Do the Unrealized profit effect the funding rate profit?

    • You don’t need to worry about the unrealized profit. Make it active for longer period and it’ll be covered by the funding fee really soon.
      It’s from the price difference of opening and closing the bot.

  21. Hi
    Do we get profit only from funding rate in arbitrage bot?
    Or there is some thing also from where we get profit?
    I am asking this because Unrealized profit is confusing me. Because if we only get profit from funding rate then what is Unrealized profit?
    And why it goes positive / negative?
    Does the Unrealized effect our profit?
    And should I worry

    • You don’t need to worry about the unrealized profit. Make it active for longer period and it’ll be covered by the funding fee really soon.
      It’s from the price difference of opening and closing the bot.

  22. So can I ignore the price gap (assuming I can cover it with the funding fee) as long as the funding rate is positive? Like open and close the bot based on funding rate and not based on price gap?

  23. Thanks for the great article, Dave. I’ve started using the SF arbitrage bot on Pionex few days ago and I’m already liking it. That said, can you explain to me how the “unrealized profit” is calculated for this bot? I noticed that the unrealized profit grows in the negative amount while my profit from arbitrage is positive, leading to (what I think) the “total profit” remaining close to zero.
    Thanks.

    • It’s from the price gap different between closing and opening bot. Let it running for a longer period, those unrealized profit won’t be a big deal then.

  24. If open btc/usdt Spot-Futures Arbitrage, what is the max time after i can close it ? Can it be 2 weeks or 3 months as well ?

  25. Hi Dave, please I need more information on how to calculate his
    Investment: 143.42 USDT
    SPOT-FUTURES ARBITRAGE BOT
    PAIRS = ETH/USDT
    LEVERAGE X3.
    What is the difference between profit (+0.0081); ROI (0.0279%) and APR is (30.6%).
    What is my percentage on investment? I need a formula to calculate it.
    Thanks
    Dave.

    • Dave