BCH Pre-Fork Arbitrage Trading Idea

889 reads

As many of you know there is an upcoming hard fork for BCH on 15 Nov and interesting opportunities have cropped up lately. One of them was the introduction of BCH ABC and BCH SV trading by Poloniex. This introduces an interesting arbitrage opportunity that I illustrate in this article.

Note: I share this example to show how the cryptocurrency market has unique arbitrage opportunities as long as you understand the mechanics behind it. It is intended for educational purpose and is by no means a recommendation or investment advice.

The Arbitrage Idea

Premise

Poloniex is trying to support the fork by allowing tradeable the possible new tokens BCHABC and BCHSV to be tradeable: Poloniex’s Announcement. Poloniex is not charging trading fees for USD trades: Circle’s Announcement.

What this mean is that there is a potential arbitrage opportunity, because remember in essence:

BCH Price = BCHABC Price + BCHSV Price

So whenever this relationship does not hold we can look to profit from it.

Example

Taking the snapshot of BCH/USDC prices on Poloniex:

Taken on 13 Nov 2018

If we take the figures above as a trade example, we can see that:

BCH = 529.52

BCHABC + BCHSV = 413.01 + 114.79 = 527.8

So BCHABC + BCHSV < BCH

Since we want to sell high and buy low, we would want to:

1. Sell 1 BCH for USDC @ 529.52

2. Use USDC to buy 1 BCHABC and 1 BCHSV @ 413.01 and 114.79 respectively.

3. You end up with 1 BCH plus 1.72 USDC profit.

This gives us roughly 0.32% ROI = 1.72 / 529.52

Edited: ROI number from 0.16% to 0.32% as there was a miscalculation previously.

Potential Issues

However there are some potential issues with this trading example because:

My example above does not factor in bid/ask spread which could make your profit go away given the relatively low ROI per trade.

Our execution speed may be too slow to capture the opportunity and as market prices constantly change between steps 1 and 2, it could mean that the profit can get eroded or even lead to a loss.

Possible Improvements:

Look at other exchanges that support BCHABC and BCHSV conversions such as HitBTC.

Use algo/automated trading to improve execution speed and pricing.

Summary

Most likely this trade cannot be done manually given that the ROI is fairly low and that problems such as fees/slippage can easily erode away your profits. But hopefully this gave you some idea of possible arbitrage opportunities that are available in the cryptocurrency space and that many more will occur as the market continues to innovate.

The post above is for informational and entertainment purposes only. Any and all information perceived through such posts, through either audio, visual, verbal or written means, should be considered the personal opinions, strategies and examples of the author and reflect his or her judgement as of the date of publication, are subject to change, and do not constitute investment or trading advice. No representation or warranty is made by the author respect to the accuracy, applicability, fitness or completeness of the contents of any information. The author of these posts shall not be held liable to any party for any direct, indirect, implied, punitive, special, incidental, or other consequential damages arising directly or indirectly from any use of the contents, which is provided as is, and without warranties of any kind whatsoever, express or implied. Any links or references to third party providers are for informational purposes only and are not warranted for content, accuracy or any other implied or explicit purpose.

Investments and trading strategies are subject to market risks and potential losses and all trading strategies likewise have the potential for profit or loss. Past performance is no guarantee of future results. There can be no assurances that any trading strategy will match or outperform any particular benchmark. No content should be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell any securities mentioned. In all cases, readers should never take any information perceived from this blog at face value and should always do their own due diligence on any materials to form their own opinions and best judgements. A professional advisor should be consulted for personalised investment advice before taking action of any kind. If the reader wishes to apply concepts or ideas contained in any post, such reader takes full responsibility for his or her actions.

© 2018 Cham Ho. All Rights Reserved. Product names, logos, brands, and other trademarks featured or referred to herein are the property of their respective trademark holders.

Tags