Designing a Cryptocurrency Spot Hedge Across Two Exchanges
Summary
This tutorial develops a simple spot arbitrage design that buys on the exchange with the lower price and sells on the one with the higher price. It explains practical requirements for implementing the idea: minimum and maximum order sizes, exchange price and quantity precision, conversion between quote currencies, and thresholds that account for fees and slippage. Because hedging can leave the two accounts with uneven coin balances, the design also includes a balancing process that compares current holdings with saved initial holdings.
The article describes gathering account and order book data, cancelling outstanding orders, estimating depth prices for a target quantity, and submitting buy and sell orders concurrently. It also discusses periodic balance checks, storing initial account data, displaying spreads and balances, and converting market and account values into a common currency. The example is a design tutorial, not a performance study: the text supplies no measured results and acknowledges that inventory can prevent a hedge until prices reverse. Execution risk and transaction costs remain material constraints.
Key ideas
- The strategy seeks to capture a cross exchange price difference by buying on the cheaper venue and selling on the more expensive one.
- Minimum and maximum order sizes, order book depth, price precision, fees, and slippage affect whether a spread is actionable.
- The design tracks initial and current holdings and includes a process to restore coin balance across accounts.
- Concurrent orders and cancellation of unfilled orders are part of the proposed execution workflow.
- When account inventories do not permit both sides of a hedge, the strategy may need to wait for prices to reverse.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.