Quantitative Arbitrage Strategy: A Robust Choice for the Crypto Assets Market

In the highly volatile Crypto Assets market, quantitative arbitrage strategies have gradually become a favored choice for investors due to their stability and risk management capabilities. Recently, two seasoned quantitative trading experts shared their in-depth insights on this strategy.

The Operational Logic of Quantitative Arbitrage

The core of quantitative arbitrage is to profit from the price difference between spot and perpetual contracts. The specific operation includes buying spot while shorting perpetual contracts. The funding rate paid by perpetual contract longs becomes the main source of income for arbitrageurs. The advantage of this strategy lies in achieving market neutrality through hedging with spot and contracts, making the portfolio unaffected by price fluctuations.

In a bull market, the funding rate is settled every 8 hours, with an annualized return of up to 20%-30%; even in a bear market, a stable return of 8%-10% can still be maintained.

The Key to Ensuring Long-Term Stability

To ensure long-term stability, the quantitative arbitrage strategy has adopted multiple measures:

1. Unified Margin Account: Integrates fund management for spot and contract transactions, reducing cross-account operational risks.

2. Dynamic Rotation Mechanism: Daily monitoring of the funding rates of mainstream coins, adjusting the portfolio based on returns and risks, optimizing returns and risks.

3. Blue chip coin deep liquidity: provides basic protection through mainstream coins such as BTC, ETH.

Risk Management Strategy

In response to potential risks, quantitative arbitrage has taken the following measures:

1. When the price difference widens, adjust your position or reallocate based on the retracement data.

2. For negative funding rates, implement a strict stop-loss mechanism. If the funding rate for a certain coin is negative for 5 consecutive days, remove it from the portfolio.

3. Diversified positions: The allocation ratio of a single coin should not exceed 5%.

4. Technical Assurance: Respond to extreme events through alarm and rapid response systems.

Comparison with Direct Coin Holding

Compared to directly holding Crypto Assets, quantitative arbitrage offers a low-risk, stable return option. It is suitable for risk-averse investors and can also be combined with coin holding strategies to achieve enhanced portfolio returns and risk balance.

Market Cycles and Profit Prospects

According to historical cycles, the Crypto Assets market experiences a halving cycle approximately every four years. It is expected that the bull market's high yield phase may last for the next 6 months. Even if entering a bear market, quantitative Arbitrage can still maintain low drawdowns and stable returns through refined management and multi-coin allocation.

Actual Operating Process

Taking 1 million USD as an example, it can be used to buy 2 million USD worth of spot assets while shorting an equivalent perpetual contract. Leverage is controlled within two times to ensure that profits mainly come from funding rates rather than market fluctuations. The unified margin accounts supported by modern exchanges greatly simplify the operational process and improve efficiency.

Responding to Extreme Market Conditions

In times of extreme market volatility, quantitative arbitrage strategies will take the following measures:

1. Timely reduce positions to ensure risk control.
2. Use the technical system to quickly alert and adjust strategies in a timely manner.
3. Focus on blue-chip coins with high trading depth and good liquidity.
4. After the market recovers, seize the opportunity to quickly increase positions to capture price differential profits.

Conclusion

Quantitative arbitrage strategies provide investors with a robust way to invest in Crypto Assets. Through meticulous risk management and flexible strategy adjustments, it can maintain relatively stable returns in various market environments, making it an indispensable part of asset allocation.