Quantitative Arbitrage: A Stable Income Path in the Crypto Market

In the fluctuations of the crypto market, quantitative arbitrage strategies have gradually become the preferred choice for investors due to their stability and risk control. Recently, two experienced quantitative trading experts shared their in-depth insights on this strategy.

The core logic of quantitative Arbitrage is to profit from the price difference between spot and perpetual contracts. Investors buy spot and simultaneously short perpetual contracts to earn income from the funding rate paid by perpetual contract holders. The main advantage of this strategy is to achieve market neutrality through the hedging of spot and contracts, making the portfolio unaffected by price fluctuations.

In a bull market, the funding rate is considerable, with annual returns reaching 20%-30%; even in a bear market, a stable return of 8%-10% can still be maintained. To ensure long-term stability, the quantitative team adopts a unified margin account for integrated fund management and optimizes the coin allocation through a dynamic rotation mechanism.

In the face of potential risks, such as a sudden widening of price spreads or a negative funding rate, experts emphasize strict risk control measures. This includes timely adjustments to positions based on drawdown data, as well as setting stop-loss mechanisms, such as adjusting strategies if the funding rate is negative for five consecutive days.

Compared to directly holding cryptocurrencies, quantitative arbitrage offers a low-risk, stable return option, particularly suitable for risk-averse investors. Experts recommend combining holding assets with quantitative arbitrage to achieve enhanced returns and risk diversification.

In practical operation, taking 1 million USD as an example, it can be used to buy 2 million USD worth of spot, while shorting the equivalent perpetual contract, with leverage typically controlled within two times. The use of a unified margin account greatly simplifies the operation process and improves efficiency.

Even in extreme market conditions, such as the significant fluctuations in March 2020, quantitative arbitrage strategies can effectively control risks through measures like diversifying positions and dynamically adjusting portfolios. Experts emphasize that the timely alarm and rapid response capabilities of technical systems are crucial when dealing with sudden market events.

Overall, quantitative arbitrage strategies are seen as an upgraded version of traditional cash management tools, offering higher returns and lower risks. They are particularly suitable for investors transitioning from bond or money market funds, as they can achieve significant yield enhancement in the current low-interest-rate environment.