Strategy selection approach using a key factor of volatility

Cross-market arbitrage of one of the most popular asset - Bitcoin, can have a bunch of different versions, depending on additional parameters. Binance is one of the most beloved markets, but we’ll work with something that is not so popular and connect another two markets.

Taker – a trader who “hits” into the market depth.

There are two types of bids: makers one and takers one.

In arbitrage trading we have to be both of them. Place bids and take bids from the market.

Maker – a trader, who bids into the market depth and by doing this, he fills the market with liquidity.

Back to our markets. The first one is Bitmex, where we’ll be a maker, which will have 0,025% with each trade and it is important in our case with a big number of trades. The second one is Deribit, where we’ll be a taker and will hit the market when we see a suitable spread, we’ll pay 0,05% for it.

Market movement is driven by volatility, there are three types of them:

• Standard - 2-3% during the day. For example, movement was in the range of 29600 - 30200.

• High - 4-6% during the day. In most cases it is a directional movement within a big trend..

• Extreme - starting from 10% during the day. It is a rare phenomenon.

We are getting ready to start a new trading month. When we are starting to work, we can add 2 more conditions, just like solving a problem from the math textbook.

We know that more than 50% of the time the market has a side movement. Therefore, a spread of 0,15% or $45 dollars in price will suit us well. Second factor - the average monthly volatility of 20%.


First option - pick a strategy with standard volatility between BTCUSD perpetual and BTCUSD with expiration in May 2023 on Bitmex, and we’ll easily get hundreds or even thousands trades per day, taking a difference of $45 dollars.

As shown in the picture above, the spread moves in the range between -30 and 320 dollars. But there is a problem - with the arrival of high volatility and with a delayed closing of the second leg, we are getting a not hedged directional position.

In that case it is better to do less trades and stay without trades for a week or maybe longer. We always choose the second option with high volatility, that is making 10-30 trades in a market rush, bringing its 7-10% of profits without a risk.


Second option gives a higher spread of 220-280$. Placing a small number of bids helps to avoid market limitations on the large number of transactions and temporary account ban.

There is no point in expectation of extreme volatility of 300-400 dollars, because you can have profits with smaller parameters.

April 16, 2023

Therefore, we’ll pay a 0,025% commission for both sides of trades (“legs”). With a price of $30000, we’ll pay a commission of $7,5. Spread should not be less than this amount

Sergey Vasilenko