Traders who are working to get solid returns on their investments might want to consider the options that cryptocurrency exchange OKEx provides for arbitrage trading.
In a blog post, the leading digital asset exchange explained how traders could use a strategy called calendar spread arbitrage to deliver returns.
OKEx, which is recognized as one of the biggest exchange platforms in the world, regularly gives its customers tips on how to navigate through the technical side of arbitrage trading. For example, the firm’s Head of Quantitative Strategy, Tom Tse, recently wrote about how an arbitrage trading strategy could deliver returns in a week or less.
Calendar spread arbitrage
Now, the exchange is offering traders an insight into another common hedging practice known as calendar spread arbitrage trading.
While the method is familiar with experienced traders, many people new to trading might not be aware of the advantages calendar spread arbitrage offers.
The strategy takes advantage of discrepancies in extrinsic values across two different contract expiries, on the same digital asset to generate a profit.
The post explains how it works in more detail:
“Futures price reflects the market sentiment of the subject’s price. In the futures market, a different settlement time contract of the same token will differ. For example, at writing time, the mark price of BTC quarterly contract is USD 10,033.3, while that of the bi-weekly contract is USD 9,973.88,” it says.
“To earn a guaranteed profit from calendar spread arbitrage, spread must fluctuate within the two positions the trader takes, which can be predicted from historical trading records.”
The post explains that the amount of return you can generate from using the method is related to the spread of different contracts, not the price, and suggested that traders new to the method use long arbitrage when the market is in a bullish phase, and short arbitrage when it is bearish.
“In this way, you can guarantee a stable profit despite market volatile. The benefit of a futures spread is that the trader has taken two positions. This allows them to earn a guaranteed profit from the exercise of both positions,” it says.
Always manage risk
A spokesperson for OKEx, says arbitrage gives customers lots of flexibility in their trading approach, but they cautioned to always manage risk.
“However experienced you are to investing, you must always know when to exit a trade, and have a damage mitigation plan in place to reduce any financial losses,” they said.