Better than Bitcoin Mining! Leveraging Arbitrage, Market Making 1: Profit on The Spread (Bid vs Ask)

hello people of the internet and welcome back to this next in our series on I guess the utility of different aspects of automated trading and algorithmic crypto trading and all that fun stuff so today we’ve done a little video on the Dara bit and bit mix sample market makers and how the coin mechs labs market maker is better than those market makers as well as an introduction McCoy Index labs some more details around our market maker and how you can sign up for a five-day trial and I’ll put the link to that here with the little description I had in my other video so today I asked or not today I guess this is the third video today so next we’re going to look at a random video I has planned for the future which is the sixth one ask my friend on Facebook to pick around random number between 1 and 10 because I have 10 videos but I’m planning on doing and I’ll give you a sneak peak what those look like here’s the sixth one leveraging in the one we’re doing right now leveraging peer arbitrage in America making number one because we have another one for peer arbitrage coming up after this and this first one is gonna be profiting on the spread which is the differences in bid and ask or buy in sell prices on different exchanges specifically on market making rather from from Eric it making maker rebate exchanges like bit max and David and the phonetics and Greg giving all the other ones we have a number of different arbitrage videos including these two cash-and-carry arbitrage videos that are coming up and a number on hedging exposure as well as a number on how to join the elite and fair in the fees and impede discounts of some of the world’s largest exchanges so I guess the first question that I would ask if I had no idea what I was talking about is well what is arbitrage what am I talking what are did and asked so arbitrage there’s some really good videos out there if you just want to use your favorite search engine and looked up arbitrage Khan Academy or actually what’s probably better than that is going to YouTube and searching up arbitrage Khan Academy i recharge basics put-call parity arbitrage arbitrage in features contracts hedge fund strategies put-call parity arbitrage to look at all of these educational videos about arbitrage so I think in this herb chugs basics video they go over the cost of apples downtown and uptown yeah that’s a great example that explains about arbitrage is if I have one Apple if it’s one dollar and Apple downtown and I can sell those apples for a dollar and fifty uptown on the same day I would buy ten apples for ten dollars I would walk them uptown I would sell ten apples for eleven fifty which is another month this is basically the difference in inefficiencies among markets so the fact that it was 11:50 at the other market just means that these markets had an inefficiency between each other and basically by doing this let’s say I did it 100x let’s say if I bought ten thousand apples the price would go up in the market where I’m buying probably dill eleven dollars hundred eggs if I sold and some apples the price would go down in the market where I’m selling actually probably to about eleven dollars um this is the effect of supply and demand and there’s a whole bunch of different theorists out there that give you a whole bunch of economic theory and practical assignments and all that fun stuff that you can learn in macroeconomics at university if you wanted to the rundown is that if there’s more supply the price goes up and if there’s more demand the price goes down and what they do is they meet financial equilibrium which is the balance among supply and demand that means that any arbitrage opportunity which is what we just did when we sold these ten apples for 1115 we realized a risk-free profit of 150 and that’s what advertising is it’s risky realizing risk-free profits through buying and selling stuff that’s basically what it is arbitrage disappears as inefficiencies are acted upon by the people and parties in the market so when I bought my 10 apples and then sold them I made a buck 50 when this person bought and sold ten thousand apples the price eventually fell in rose to eleven dollars in each case but as it did so they realized whatever that difference is they’re like $100 $150 and up two hundred and fifty dollars in profits but now the opportunity doesn’t exist anymore because the price has gone up and down to eleven dollars what is arbitrage and what is our George well that’s basically it so what we’re doing today is were arbitrage in the bid enhanced on a specific exchange so I can actually look at my live trading arbitrage market-making bought which is actually up more Bitcoin than it was earlier today when I took my other two videos from actively trading Bitcoin and what I mean by arbitrage in the bid and ask I wish I could find a better example maybe I’ll find a better example on fit max actually I’m definitely well on FTX I want to look at a futures contract or a perpetual contract let’s see if I can look at the June contract and all these are just different markets for different coins and tokens so yeah this is a much better example of arbitrage Roma didn’t ask so here’s my bid prices in my highest prices so before we get into what the Irish are getting asked is let’s ask ourselves what is the bid and ask the bid is the buy yes is the sell so basically these people are willing to sell this asset which is a futures contract that’s settling sometime in the future June for Bitcoin so basically I say that I want to buy or sell the ability to buy or sell Bitcoin in June for this price so this price won’t necessarily be the same price as I’m the professional contract which is the price of a Bitcoin as people I think it should be now it’s what people think it should be in June so right now these people are willing to sell me the ability to buy this futures contract for this price is the lowest price that’s the best the lowest ask are the best ask for the best offer this is the best bid for that contract the bid is the highest price someone is willing to pay for that contract at that point in time so the the best prices here are called the best bid offer which is the best price that you can get for buying or selling which is what market making is considered concerned concerned with because we want to usually and the price is just above and below that because we want to make both sides of the markets we want to both sell and buy usually in most cases unless we’re hedging against ourselves or otherwise risk averse to it and basically buy or sell and basically realize a few different ways to profit one of them is what we’re going over right now all of these YouTube videos go over the different ways but in my notes for one of these videos that I did earlier I go over the three main ways that we generate revenues using the market maker which is right here the video we’re doing now earning on trading rebates instantly it went almost sorry not this video sorry we feel we’re doing now is this one earning on the spread itself on average which is pure arbitrage the next one we’re gonna do a couple videos actually on the other way that we can earn using market making using the coin decks trading BOTS and provide Terry patent-pending artificial intelligence that predicts our volatilities and optimizes our input variables which is the convergence of futures prices to perpetual is known as cash-and-carry arbitrage which is just different kind of repertoire which I’ll go over in a different video or you can review on that YouTube Carnac I don’t I to me folks videos before I get to him so this itself how do we arbitrage this bread well because I just gave you this great example on FTX you can see it right before your eyes so if I was to buy some of these contracts and we’re just gonna choose to the prices that pop up here so it looks like it’s staying around seven eight seven five five eight seven five so if I was to buy one of these contracts for Bitcoin in June let’s say I buy a whole one of them now let’s say about two for the well actually mid sized BTC so we can only buy up to this much that’s the inefficiency that I was talking about so let’s say if we wanted to buy a thousand Bitcoin worth of this futures contract the price would go down significantly while I do that rather yeah because I’ve bought all of the Bitcoin contracts that exist I bought these 20 years in this 8 and this one and this 32 and the price we just go down and down and down until probably around here where I bought my thousand or not I said a thousand so to go down even further we can see in this list because we’re buying up all the Bitcoin that exists on this exchange now there’s lots of more Bitcoin available on other exchanges for the June feature so the price would equal out to an equilibrium a lot faster and a lot higher than what I’ve bought it down to and Wales or people with a lot of Bitcoin or or crypto or any kind of traditional capital will use that to their advantage to manipulate markets to get some quick gains by the way we’re gonna buy two bitcoin contracts for 5875 we’re gonna spend this much money on it we’re gonna do it at leverage a 10x leverage so it only really cost us this much to do of our equity but we do have the ability to liquidate should the price go too far down next what we’re going to do is immediately after that because the markets are right here I’m gonna sell those to Bitcoin futures contracts for five eight zeros four five eight eight zero point five so 2.0 equals well what is that equal actually we’re not gonna worry about the leverage let’s say I did spend eleven thousand seven hundred fifty dollars at 1x leveraged or on a spot exchange don’t do their spot exchanges for features but you know what I mean let’s say I just didn’t have leverage is easier to explain then borrowing the money so if I sold two of these and I sell them for this much and what’s the difference there well the difference is kind of substantial differences love dollars but that eleven dollars is $11 I’ve realized nearly immediately because I’ve sold of the best bid and offer the president’s gone down but look about at the price to buying it’s also gone down so in case I didn’t sell it immediately I can just buy more and because these are features and because they’re leveraged I could also short more or sell more than I have hold what this means then yes is that it can hold competing balances of shorts and Long’s now let’s take a look what this looks like on my debit console or terminal or interface where I have the coin decks labs live trading algorithm doing its thing it’s got 12 open orders it wants to sell more than wants to buy those must be old sell orders that are update here in a second because it is oversold right now and it’s gonna work to bring that net difference or that that hedged purple you see the professionals are all sold and the features are all bought so it’s actually balancing those out to a net 0 different set of times and look at that is buying more now so if you take a look at the trade history let’s take a look at the transaction mister transaction law so what does that look like well that’s a bad example there actually want just one feature of Esper one let’s do BTC perpetual alright so let’s take a look when was the last time we bought any BTC professor one all right so looks like we closed some positions here remember I said we could have sold it before we bought it back so it looks like here I sold 60 con $60 worth of BTC perpetual I sold some more of her before that first for just a little bit less and let’s just concern ourselves with those for now over the average these all work out to be rather profitable you can see here in one of these columns my change on my balance on my count [Music] positive in each of these cases so I sold all of these perpetual contracts 60 60 60 60 and I did that within seconds and then nine seconds later I went and I bought out of those contracts for less than I paid for them so I buy low and sell high I bought them all about these ones even cheaper a few seconds later and a few seconds after that I bought them way cheaper and look at my realized gains on the way cheaper ones now these are all fractions of a Bitcoin but keep in mind um there’s a lot of transactions I wonder if I can search by 3rd mar 22 2013 or not June not 2016 as 19 mar 30 years ago zero zero zero so if I look at Paul luggage from today um I can see that I have more than 100 entries if i download these the Hogs and what is today now this is in UTC so it looks like this is one hours not even a whole hours worth of logs that I just downloaded and I see how many trains we had in less than an hour I don’t want to restore my dress I don’t want to I just want to open the one I downloaded guys so in less than an hour I’ve had a that’s so done it’s gonna be – – really long oh this is more days than I want it way more days it’s – less which means it’s 104 rows I’ve had 104 a row or trades well let’s actually look at a full hour well no I guess that is a full hour because these ones that are 25 past the hour it took a little break there I must have noticed some volatility it did cuz check it out it closed out of a quote at 25 out to the hour it closed out of the positions that was then and took a little break whoops I lost track what I was doing anyway we have 104 trades in 50 minutes did I say 100 and 200 for which is pretty good I wonder what that works out to before / time wait aa 15/16 times coming forward that’s eighty six and two-thirds trades a minute and it’s been doing that for days indeed he’s now and it can do that while I sleep which is a pretty cool little factor eighty-six trades a minute an hour rather so that’s 2080 a day I wonder if manual traders can do 2,000 trades a day and I wonder if they can earn fees on each of those trades rather than paying fees each and every one of these trades in that transaction long that I just downloaded our negative feeds meaning that we earned fees on each of them and we’ll go over the fees and all the other arbitrage opportunities in all of these other videos that I’m just about to post and then next few days all right thanks folks