Review: an arbitrage trade that didn't converge

7 min read · Why "spot versus futures" opportunities are negative despite a positive forecast, while spot rebalancing is profitable.

Level:

Short version for experts: tables, lists and screenshots only.

Words in this lesson (12)

Short — Selling in the hope that the price will fall: you sell something borrowed, then buy it back cheaper. You make money when the price drops.

Spread — The difference between two prices. In the order book — between the best bid and the best ask. In arbitrage — between the price of the same asset on two venues.

Arbitrage — Making money on the price difference of the same thing in two places: buy where it's cheaper, sell where it's more expensive.

Opportunity (arbitrage pair) — A pair of trades in arbitrage: where we buy and where we sell.

Funding — A regular payment between those who are long and those who are short on a perpetual futures contract. Who pays depends on whether the futures price is above or below spot.

Spot — Ordinary buying and selling of the coin or stock itself: you buy it — it's yours.

Futures — A contract on the price of an asset. You don't receive the coin itself — you gain or lose on the price change. Lets you short and use leverage.

Volume — How much money or how many units changed hands over a period. A move on high volume is more reliable than one on low volume.

Screener — A filtering program: it scans hundreds of stocks or coins and shows only those that match the given criteria.

Fee — What you pay the exchange for every trade — both on entry and on exit.

Win rate — The share of trades closed in profit. On its own it says nothing about profitability: what matters too is how much a winning trade brings and how much a losing one takes.

DEMO — The DEMO account in MAMAY: prices and fees are real, orders don't go to the exchange, and no real money is at risk.

The starting numbers

The same demo account, the "Journal" section. Automated trading made 558 trades.

Strategy	Trades	Winners	Result	Average hold	Forecast accuracy
Spot rebalancing	500	92%	+$2,783	9 min	104%
S↔F (spot and futures on different exchanges)	39	44%	−$51	4 h 56 min	−16%
Funding (spot and a futures short)	9	33%	−$9	6 h 30 min	−23%
F↔F (futures on two exchanges)	10	0%	−$5	43 min	−18%

The overall result is positive, and an 86% win rate looks great. But if you look only at the overall result, you miss the main thing: one strategy makes the profit, the other three lose.

Why spot rebalancing works

Accuracy of 104% — the outcome is even slightly better than the forecast. A 9-minute hold. The trade is simple: buy, transfer, sell. There's little time for something to go wrong.

Why S↔F doesn't work

Accuracy −16%: the calculation promised a profit, the result was a loss. In every visible row of "History" the forecast is from +$1.70 to +$6.24, the outcome from −$0.24 to −$1.59.

Three reasons visible in the data:

1. The spread doesn't converge within the holding time. The average hold is almost 5 hours versus 9 minutes for rebalancing. The calculation assumes the spread will return to its average. It doesn't always.

2. Exiting on time is the most expensive. The "Holding limit expired" exit reason: 4 trades, −$44. So almost the whole loss of the strategy is four trades that never converged.

3. The worst trade. ONE: $143 of capital, a forecast of +$22, an outcome of −$38, a hold of 1 day 15 hours. The spread didn't just fail to converge — it widened further. A +$22 forecast on $143 of capital is 15%. Too good to be an ordinary inefficiency: most likely something was going on with the coin (closed deposits or withdrawals, news), and the spread wasn't an opportunity but a warning.

Why funding doesn't work

A hold of 6 h 30 min — less than one payment (payments come every 8 hours). The opportunities were closed before they could receive what they were opened for. Entry and exit fees were paid, funding wasn't received.

What to do about it

In the "Screener builder" → the "Strategies" section: turn off or limit S↔F and F↔F until the entry rule changes.
The "Arbitrage · timing" section: check the holding limit.
For funding — don't close before the first payment unless there's a reason.
A forecast that's too big is a reason to check the coin, not to increase the size. Are deposits and withdrawals open? Is there news?
In a week, open the "Journal" and compare.

A lesson broader than this example

A high overall win rate can hide a losing strategy. Always break the result down by trade type.

And one more thing: a single ORCA spot rebalancing trade gave −$72.84 against a plan of +$6.72. With 500 trades and an average result of +$5.57, that doesn't break the strategy — but it shows that it has a rare big loss. It's worth limiting separately: with a size cap per trade.

↗ Open "Journal" in MAMAY ↗ Screener builder in MAMAY