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What is Binance Smart Arbitrage and How to Get Started?
2024-10-02
Introduction
Frequently Asked Questions
Tutorial Video
What is Binance Smart Arbitrage and how does it work?
The Smart Arbitrage is an innovative tool designed for traders to engage in arbitrage strategies between perpetual futures contracts and their spot equivalents. It leverages the funding rate mechanism by hedging their futures position with a spot position to collect the funding fee.
In Smart Arbitrage, the product builds a strategic combination of futures and spot. It involves futures trading that needs to comply with futures trading rules.
Arbitrage involves going long in one market (e.g., spot) and short in the other (e.g., futures) to collect the funding fee. The funding rate arbitrage strategy is delta-neutral, meaning it aims to hedge out price movement risks by taking opposite positions in the futures and spot markets. This strategy implies that no matter the price change direction, your profit on a long position will offset your loss on short (or vice versa), and you will collect the funding fee. The goal is to profit from the funding rate payments without being exposed to significant price volatility risks.
What are funding fees in Perpetual Futures trading?
Funding fees are periodic payments between long and short position holders in perpetual futures markets, intended to align the futures prices with the spot prices of the underlying asset.
Funding fees = position size x funding rate
Funding rate then determines the funding fee, fluctuating over time for every symbol independently. You can find an overview of the funding rate here for each symbol on Binance Futures. For more information about funding rates, please refer to Introduction to Binance Futures Funding Rates.
How to get started with Smart Arbitrage?
Subscribing to Smart Arbitrage 1. Head to [Earn] - [High Yield] - [Smart Arbitrage] on the web.
2. Choose the principal and portfolio of your arbitrage strategy, and then click [Subscribe] to start.
3. Input your investment amount and click [Confirm].
Monitoring your portfolio
Click on [My Portfolio] on Smart Arbitrage homepage or [Asset] - [Earn] - [Smart Arbitrage] to track your portfolio details, such as position size, total funding, market value, and receive funding fee alerts.
Position Size: Notional Values of Spot and Futures position.
Total Funding: Accumulated total of all funding fees collected during the strategy’s runtime.
Market Value: Total balance of all assets allocated to the strategy (using last price) + unrealized PnL from futures positions.
Funding Rate Alert: Indicates that current 3-day Cumulative Funding Rate or the Next Funding Rate has opposite buy/sell direction from your running strategy. Consider ending the strategy manually when triggered.
Managing your portfolio
Please click on [Asset] - [Earn] - [Smart Arbitrage] - [Redeem] to redeem your investment and close your position.
For related questions, click to view the “Frequently Asked Questions” tab on this page.
1. How many funding rate strategies can I run simultaneously?
You can operate up to 10 independent funding rate arbitrage strategies, each supporting a different symbol. This means you cannot have more than one strategy per symbol, even in different accounts. For example, if you open a BTCUSDT long in one account, you cannot open another BTCUSDT strategy in a different account.
2. What is the impact of leverage on my futures positions?
Leverage affects the initial margin required but does not influence the margin ratio. Therefore, increasing leverage does not inherently increase liquidation risk.
Your futures position size is equal to your spot order executed size in order to keep a delta neutral strategy.
The leverage level will impact the initial margin required to keep the position open.
3. What is Spread Control?
Significant and persistent price differences may affect the profitability and risk profile of your arbitrage strategy. Spread Control makes sure that Futures price and Spot price are aligned when you create the strategy.
Spread = futures last price - spot last price, for long is -0.1%, for short is 0.1%.
Spread Control is by default in the system set at 0.1% absolute value.
4. Can I get liquidated while using the Smart Arbitrage?
While the Smart Arbitrage aims to minimize risk through its hedging strategy, extreme market conditions and delays in price adjustments between spot and futures markets could potentially lead to liquidation events. Users should maintain adequate margins and monitor their positions closely to manage risk effectively.
While the bot aims to reduce risk through hedging, extreme market conditions could still lead to potential liquidation.
Spot vs Futures mark price divergence scenario
For example, an extreme market divergence can cause a significant spread between the futures and spot prices. Suppose you go long in a UM BTCUSDT contract at 60,000, while the spot price remains unchanged, but the UM BTCUSDT price drops to 12,000. In this case, the account could be liquidated, as the uniMMR would drop below 105%.
Recurring Opposite Funding Rate eating up margin
Additionally, if the funding rate changes against your position, it can gradually eat up your margin, eventually leading to liquidation.
5. Why do I get negative profits after subscribing?
There are costs associated with subscribing to Smart Arbitrage, including trading fees and spread. The trading fee is up to 0.14% depending on your VIP level. Spread control is by default in the system set at 0.1% absolute value.
As the holding time increases, the income from the funding rate (if it is a positive funding rate) will gradually offset the initial cost and generate profits.
