The math of an opportunity: what's left after costs

8 min read · The raw spread and the net result. Fees, slippage, funding, transfers.

Level:

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

Words in this lesson (10)

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.

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.

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.

Order book — The list of all buy and sell orders at every price at this very second.

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.

Slippage — The difference between the price you saw and the price at which the trade was actually filled.

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

Market order — An order to "buy or sell right now at the best available price". It fills immediately.

The spread on the screen is not profit yet

A beginner sees a 0.8% spread and thinks that's their earnings. A professional immediately subtracts the costs. MAMAY has two different columns for this:

Spread — the raw price gap. What you see with your eyes.
Best NET — the net result: the spread from the real order book plus funding, minus fees, minus slippage. This is the one to look at.

What the costs are made of

1. Fees. An opportunity has four trades: opening two legs and closing two legs. If the market order fee is 0.05% per trade, about 0.2% goes on the round trip.

2. Slippage. Only a limited size sits at the best price in the order book. The bigger your trade, the deeper it goes into the book and the worse the average price. MAMAY calculates the spread not at the best price but at the average fill price for your size — so the net result depends on the trade size.

3. Funding. While you hold a futures leg, every few hours you pay or receive a payment. It can add to the result or eat it.

4. Transfer (only if the opportunity requires moving the coin between exchanges): the network fee and the time during which the spread can disappear.

Let's count an example

The opportunity: buy the coin on exchange A at 1.000, sell futures on exchange B at 1.008. The raw spread is 0.8%.

Item	Value
Raw spread	+0.80%
Fees (4 trades at 0.05%)	−0.20%
Slippage on both legs	−0.15%
Funding over the holding period	+0.05%
Net result	+0.50%

Now the same opportunity with a 0.35% spread: 0.35 − 0.20 − 0.15 + 0.05 = +0.05%. Formally positive, in practice — working to pay the exchange's fees. We skip such a trade.

The rule: if the edge can't be counted, there's no trade. Skipping a bad trade is as much a result of the work as a profitable trade.

Annual return is not a promise

The screener has an annual return column. It's a projection: "what would happen if this trade repeated non-stop all year". It's only for comparing opportunities with each other. In real life spreads appear and disappear, and you can't get that number over a year.

↗ Open "Crypto Arbitrage" in MAMAY ▶ Next lesson: funding

The math of an opportunity: what's left after costs

The spread on the screen is not profit yet

What the costs are made of

Let's count an example

Annual return is not a promise

Learn where you trade