Customers of global cryptocurrency exchange OKEx are seeing steady returns on their investments using an arbitrage strategy.
The strategy, only possible because of OKEx offers both margin and its new Perpetual Swap product, has been proven to deliver returns to customers in just seven days.
Now, Thomas Tse, Head of Quantitative Strategy at the Malta-based exchange has outlined just how investors are generating a return using an arbitrage strategy, and how they are benefitting from the OKEx platform’s ‘all-in-one’ approach of offering their users and customers access to a full suite of trading tools in one place.
“With the offering of both spot, margin, and derivatives trading at one spot,” he said, “OKEx provides users a world-class marketplace which opens the doors to a lot of arbitrage opportunities, saving you the hassle of withdrawing funds from a derivatives exchange to another spot trading platform, also the extra time and costs from blockchain transactions.”
He pointed out his findings in a blog post on the exchange’s Medium page.
In the post, he demonstrates how a customer can generate a return on their investment of nearly 1.7 percent in a seven-day period using the arbitrage strategy.
He said: “To execute this strategy, we assume the following:
- A margin trading interest rate settle with loyalty points (70 percent discount on the secondary market)
- Tier VIP3 in the fee schedule
a. spot trading taker fee = 0.07 percent
b. perpetual swap trading taker fee = 0.05 percent
- You have Tether (USDT) in your OKEX wallet.
- There are available coins to borrow.”
Breaking down the process by which customers generated a return he used an example where a user would borrow $1,000 of TRON’s TRX token, using $1,000 of USDT as a margin. The customer would then sell $666 of TRX for USDT and use $333 of TRX as a swap margin and buy 66 TRX contracts. The customer would then pay their transaction fees, the spot lending rate and receive the swap funding rate.
Tse said: “Borrow 1,000USDT-equivalent of TRX. Short two-thirds of it at spot margin trading (666.67 USDT). Then, transfer the remaining third to a Perpetual Swap account, open 66 swaps which is equal to $660. It is almost a delta-neutral strategy.
“Starting with a capital of 1,000 USDT on July 15, 2019, the 7-day yield was around 1.66 percent. The flow of coins shows a yield of 575 TRX which was 1.66 percent return.”
Tse reminded OKEx users anyone trading derivatives, or investing in any digital asset should be aware of the risk involved and have an appropriate strategy to mitigate risk.