In previous blog, I mentioned about the various risk and why the altcoin balance is deviate from initial balance when performing arbitrage. We understand how leave order happen. The more leave order, the more the deviation from the original start position if it doesn’t get filled. Leave order means you have done one way transaction and the other side of the order is waiting to be filled. Either buy or sell.
In a bull market when the liquidity is high, you have higher possibility of filling buy and sell orders. Hence, capture the profit. But in bear market, investors are more cautious in buying the selling, therefore, the chances of being filled in either buy or sell is relatively lower. In this period, you may find number of leave order is higher in your Exchange.
What is the best way avoiding it?
Let’s take this as example in my portfolio:
My total position : 1 BTC and 20 ETH
In bull market, I would set as below:
=> Max size = 2 ETH(10% each time of my total ETH position)
=> Spread = 0.80%
The main point of setting higher in Max Size is to capture bigger profit because I understand the buy and sell order would be relatively easy to be filled. Also, in bull market the spread tend to be wider than bear market. Setting higher spreads would allow me to avoid those smaller profit and maximize the profit in each arbitrage.
In bear market, I would set as below:
=> Max size = 0.50 ETH (2.5% each time of my total ETH position)
=> Spread = 0.40%
I set it lower in max size because I want to reduce the risk of being off from my starting position due to the large number of leave order. Also, I would set the spread lower because the spreads tend to be narrower in bear market. If possible I wouldn’t set it lower than 0.40% to avoid higher market risk for the smaller profit captured in arbitrage.
Last but not least, I will always buy back or sell the extra position to adjust my position back to original start position every once or twice a week
Note: This is based on personal experience of performing arbitrage. This is not financial advice and strictly for reference only