What's the deal with this arbitrage trading?

I’m not talking about the usual arbitrage trading where you’re just checking coin prices on different exchanges. This is about an exchange offering you arbitrage betting involving both the spot and futures markets. You’ll need to set a limit price for a coin like bitcoin on the spot market (that’s on the left side of the image) and then also set a market or limit price for that same coin in the futures market (on the right side of the image). Make sure to use the same amount of cash for both. And remember, the spot and futures markets need to be opposites. Has anyone tried this? I’m kinda confused about the whole concept and how crucial it is for traders.

I have never used this platform or this type of trading before, but the idea piqued my interest, so I did some research to find out what it was worth. There are common benefits for spot and futures traders because they provide a fixed and stable profit, and arbitrage is considered low-risk, low-volatility, and its return is almost fixed, as it is similar to bonds, interest accounts, or passive income. Most importantly, you don't need to predict the market direction because you don't need to know whether BTC will rise or fall, or whether the market is up or down, because profit comes from the convergence of prices not from the direction.

From what am seeing, it looks like one would have to buy something like 1 BTC at the current market price and then sell that same 1 BTC short, in the perpetual futures market. It's just like a buying low and selling high kind of trade that simultaneously allows a trader to trade same amount of Bitcoin at once. I have yet to try out something like this, because trading might actually require more funds to spare than all your funds to trade with and although that's not an excuse, one has got to trade such new methods of trades with funds they can afford to lose.

I have traded both sport and futures markets, but this is my first time seeing this kind of "arbitrage" trading. Obviously the exchange cares most about the fees. To me, I think I don't like the idea of trading in that manner If it's a spot market, it's a spot market. If it's futures, then it's futures. I don't like the idea of mixed open orders or positions.

I’ve never done this before, and I might be a bit inexperienced since I’ve only recently learned that there are platforms capable of arbitraging between spot and futures markets. If I may ask, I’m interested in the platform being used? I’m quite curious to try it out. The typical goal of arbitrage is simply to find price differences between one exchange and another, but finding price differences across two markets of different types is truly new information to me. And if that can be leveraged, it might be quite good. Because we know there’s always a slight price difference between the spot and futures markets, even on the same exchange. Usually, the futures market’s response can be slower or faster in updating prices. And I think if there’s a way to take advantage of that, it would be quite good.

Basically you are betting on the price difference to widen or to narrow so that you can sell at high and rebuy at low (narrowing) in the scenario where the spot price is too low and the future price is too high or the opposite (widen). What other benefits I can see from this is you can use this to hedge and farm yield. I guess this also helps the exchanges' future market to get its price closer to spot by making things simple for arbitrage traders.

This is what is known as delta neutral trading. You don’t have directional exposure to the price of BTC, but you can still earn from funding rates and from shorting the price when the futures contract is above spot market price. You can take it a step further by lending or staking the spot asset to increase your yield. There are several different ways you can set up a delta neutral strategy, but it is basically a way to earn yield.

This quite understandable considering the fact that the futures market price is usually higher than that of the spot, but in this case base on your explanation it’s like the profit only comes from funding rate and this is as a result of the short of trade which gets payed off by long traders, then as such the only time you experienced loss is when the funding rate is negative and then as a short trader you must have to pay the longs then? If this is it, then wouldn’t the profit be so small considering not so much from the funding rates

I have never really been a fan of arbitrage trading, to be honest. From what I understand, the idea is just to lock in a small, almost risk free, profit by taking opposite positions in spot and futures, so price differences or funding gaps don’t affect you much. But in real life, it is not always that simple. Fees, slippage, timing and execution speed can eat up the profit quickly, so what looks like easy money on paper can become stressful in practice. For example  you might set both positions expecting a small guaranteed gain, but a quick price move or delay in execution can turn it into break even or even loss.

Is it really called arbitrage trading? Because as far as I understand, what you are describing sounds more like hedging. It does not seem like arbitrage trading. Your wording is a bit unclear, so maybe that is why I am not fully getting your point. Correct me if I am wrong. You mentioned something like buying BTC on spot and shorting BTC on futures. If that is what you meant, then that sounds like hedging, bro. I have tried it as well, but it is not some loophole like it seems at first. You can still lose money, because the loss on one side is usually offset by the gain on the other, and you often end up close to where you started. But if your futures position goes wrong, you can actually end up with even bigger losses.

I've never seen this platform before, actually. If you do arbitrage you need some funds to 2 or 4 exchanges where you can buy a coin at lower price and sell to other exchange where the price is higher than the other exchange. This looks to be a delta-neutral trading strategy in which you buy on the spot and short futures. The reason for this, I believe in arbitrage, is due to the time required to transfer coins to another exchange minus fees. If this service is available on a single page, they will not have to go through the hassle.

Since this is not cross-exchange arbitrage, there might be advantages, such as faster reaction to a certain price point. The Delta-Neutral trading could be advantageous for this one. It's similar to hedging IMO. I have done this across different exchanges, not just on one. The big difference I noticed is that funding rates can vary across exchanges, and it's not always a sure-shot strategy.

But I still wonder, is the market ready for this? There have been great innovations coming forward but a few of those innovations were not really required. Will this be ones of those innovations which is not really required in a real-life? People have almost forgot the real meaning behind arbitrage trading. This might not be their faults as the market makers have made it almost impossible to make profits using the traditional arbitrage methods. I think that is the reason someone thought about mixing arbitrage with spot and futures. This might still be in it's beta stage so I would wait for some more time before I can dig deeper into this market. I usually do not take unnecessary risks so I would like to wait and watch to see if this becomes the next hyped market.