A Prototype Cross-Exchange Futures Hedge Based on Price Spreads

Summary

This note presents a rudimentary BTC futures strategy prototype that monitors order books on two exchanges. When the bid on one venue exceeds the ask on the other by a specified spread, the example opens a short on the first exchange and a long on the second. If the spread widens by another step, it adds another paired position. It later closes both legs when the first exchange position’s reported loss crosses a small threshold, then resets its tracking value and repeats. The author frames the method as an exploration of whether losses on one leg can be offset by gains on the other as spreads move. The document supplies pseudocode and a brief historical backtest configuration, but reports no performance results and says the prototype has not been used in live trading. It identifies unresolved implementation issues, including contract denomination and differences in contract multipliers across venues. It also leaves major practical details unclear, such as fees, funding, execution quality, legging risk, hedge sizing, and position limits, so the example does not establish that the approach is reliably profitable or market-neutral.

Key ideas

• The prototype compares order-book prices for futures contracts on two exchanges to identify a spread condition.
• It opens opposite-direction positions across venues and adds paired positions when the spread widens by a configured step.
• The example closes both legs based on a loss threshold observed on one exchange position.
• Contract denomination and multiplier differences can make the two hedge legs mismatched.
• The author describes the strategy as untested in live trading and leaves execution and risk details unresolved.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.