Arbitrage

Arbitrage

Arbitrage is a different mode of trading in WolfBot. The goal of arbitrage is not to “buy low and sell high” as with regular trading. Instead you look for price differences between 2 Exchanges. Arbitrage trades happen “on the books” with your local exchange balance only. This means you deposit enough money (USD, BTC,…) in both exchanges before you start trading and then WolfBot will look for arbitrage opportunities. You don’t have to send any funds between those exchanges while doing arbitrage. Then you will manually have to clear your balances by transferring some profits from one exchange to the other. This method has 2 advantages:

  • arbitrage is faster because your trades happen instantly on both exchanges simultaneously
  • arbitrage is safer because the API keys of WolfBot don’t need “withdrawal” permissions on the exchanges, that is WolfBot can never withdraw your money (in case of bugs or a security breach)

Furthermore you can choose if you want to trade on both exchanges or just on one of them (for example follow the prices of the bigger exchange with higher volume by trading only on the smaller one).
When trading on both exchanges WolfBot will assume that prices converge to a value in between both prices. To hedge against risks if prices on exchanges diverge further, WolfBot can stay price-neutral which means it buys the same amount of coins on the first exchange which is sells on the second one. So the loss on one exchange will always be the profit on the other exchange if prices diverge. If prices converge as predicted you will take a small profit on both exchanges. Alternatively if you think the overall market trend is bullish/bearish you can configure arbitrage to open a greater position in one direction. Crypto markets are still inefficient, so there are many arbitrage opportunities amongst hundreds of coins.

WolfBot also takes trading fees (maker or taker) and your trading tier level into account when looking for arbitrage opportunities.

 

Screenshot of the configuration of our popular Spread arbitrage strategy. This strategy:

  1. Enters the market once there is a sufficiently large enough spread (as configured) between 2 exchanges.
  2. Places a trailing stop to exit the arbitrage trade (on both exchanges) once that spread has gotten smaller.

 

There is also a triangular Arbitrage which means trading between 3 currencies on the same exchange (for example BTC <-> USD <-> ETH <-> BTC). This can be a bit more risky since prices can change very quickly while you are in between your arbitrage trades.
WolfBot currently doesn’t support triangular Arbitrage nor any Backtesting with 3 currencies at once.