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Setting Up a Three-Legged Crypto Futures Spread

Article Quant Q&A · Author: cjm2671
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Summary

The document describes a possible relative-value trade across three crypto futures markets: BTC/ETH settled in BTC, USD/ETH settled in ETH, and USD/BTC settled in BTC. It suggests that prices may temporarily diverge and proposes a spread expression based on the relationship between the quoted prices. The author also hypothesizes a long and short direction for a positive spread.

No reply, derivation, market data, or trade outcome is included, so the expression and proposed positions remain unverified. Contract settlement currencies and quote conventions matter when comparing legs, and the post does not specify contract multipliers, conversion details, or how to balance exposures. It therefore serves as an initial triangular-arbitrage question rather than a complete strategy. A trader would need to derive the payoff in common units and account for execution costs and contract terms before interpreting a spread signal.

Key ideas

  • The proposed setup links three crypto futures markets through BTC, ETH, and USD quotes.
  • The author gives a spread expression and suggests a direction for trading a positive reading.
  • The document provides no derivation or evidence that the proposed expression is correct.
  • Settlement currencies and contract specifications must be accounted for when balancing the legs.

Tags

CryptoFuturesArbitrageExecution
Full text
# Simple 3 way delta hedge


# Simple 3 way delta hedge












Consider 3 futures contracts:

```
A BTC/ETH, settled in BTC 

B USD/ETH, settled in ETH

C USD/BTC, settled in BTC
```

As the markets aren't efficient, sometimes these contracts might move apart from each other.

To calculate the spread, I believe the formula would be

```
spread % = A / (B/C - 1) * 100%
```

If the spread is positive, and you want to earn the spread, which contracts should be long & short?

(I believe it should be long A, short B, long C)

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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