Hercules Arbitrage Strategy (HAS) aims at taking advantage of price inefficiencies and fluctuations in markets by identifying the overlap between the highest bid prices and the lowest ask prices. When the bid price on one exchange is higher than the ask price on another exchange for a cryptocurrency, this is an arbitrage opportunity and we capitalize on this opportunity to turn profits for our investors. Types of arbitrage opportunities that will be deployed to make profits are as follows:
Simple Arbitrage: This form of arbitrage buys and sells the same crypto asset on different exchanges as quickly as possible to take advantage of the inefficiencies of pricing across exchanges. It does not require any additional trades outside those necessary to swap the two assets which are shared by the asset pair which is exhibiting the arbitrage opportunity. Below are the step by step process
Step 1
Collect order book data on each exchange for assets which we have evaluated for arbitrage
Step 2
Identify the arbitrage opportunity by looking at the overlap between the bid and ask prices on each exchange for the individual asset we are evaluating.
Step 3
Sell the asset on the exchange where the price is higher and buy on the exchange where the price of the asset is lower.
Step 4
Continue selling the asset on the exchange where the price is higher and buying on the exchange where the price is lower. This will consume the order book.
Step 5
Once the entire opportunity has been consumed, we stop buying and selling the asset.
Triangular Arbitrage: This form of arbitrage occurs on a single exchange (or across multiple exchanges) where the price differences between three difference cryptocurrencies leads to an arbitrage opportunity. Since many exchanges have a number of markets with a variety of quote currency options. This opens up a long list of triangular trading patterns which we leverage to take advantage of inefficiencies in an individual exchanges pricing. Below are step by step process
Step 1
Begin at one asset. This asset will be the asset to which we eventually return after completing the arbitrage loop.
Step 2
Trade to a second currency which connects to both the original asset and the next asset in the loop. This is required to prevent transversing on the same path.
Step 3
Trade to a third currency which connects both the first and second asset. This second trade locks in a zero-risk profit due to the rate inconsistencies across the 3 pairs.
Step 4
Convert the third currency back for the original asset.
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