Long BTC short CME BTC futures trade, what are the risks?

D

Daal

I'm referring to the arb of long BTC (stored with the trader, in a hardware wallet or something along those lines) and short CME BTC futures (which typically trades at a premium).
My quick calculation shows that this arb would pay 10% a year.

The risks that I can think of are:
-Hacking risk for the real BTC (Hardware wallet is stolen and the thief brute forces the PIN with special software, or something like that)

-Margin risks on the futures leg. IB maintanance margins for shorting CME futures is $160,000, even though the contract value is around $92,000 currently. If bitcoin soars 2-3x, that margin requirement might soar even more than that (Petterfly tends to be conservative) . If this event happens quickly, there might be not enough time to wire in more funds resulting in a costly auto-liquidation

any others?
 
When traders do arbitrage trading, they close their position within few mini seconds to few seconds. They use powerful machines close to the exchange to cut down latency problem.


how long do you plan to hold your position?
 
As a long as the returns are significantly higher than other places one can park cash in. But I'm just exploring the idea, I'm not sure I will follow up on this
 
maxinger said:
When traders do arbitrage trading, they close their position within few mini seconds to few seconds. They use powerful machines close to the exchange to cut down latency problem.


how long do you plan to hold your position?
More...
Oh god...this post alone completly disqualifies you XD

OP is talking about a simple cash and carry trade that is held until expiry.

@Daal : When the carry blows up to 20% while BTC rises, you're in deep trouble, bro. Margin increase and a hefty loss on your hedge. Basis is even more volatile than the unterlying, that's why it's usually better to just spread it and sell near term and buy long term as proxy to spot.

Also remember, one contract is always 5 BTC.
Right now it's worth 100k with BTC at 20k, but when it jumps to 30k, you're looking at 125k notional...and 5k+ or - can happen within a couple of hours in BTC. IB might be very quick when it comes to adjusting margin and in order for you to wire additional funds, you have to sell your cash BTC for USD and wire that to IB.
 
@maxinger You really need to stop talking about things you know very little about.

@Daal @MrMuppet is right. There's a reason the CME basis is there. I do cash carry fairly frequently when basis spikes and yes it is essentially returns on cash unless you fuck up the execution. I do not use CME.
 
I think you might be able to do it within the same broker... deribit I think it was, that should let you hold the coin and short the future.
 
Go to ftx.com and open an account.
You can get the same arbitrage roughly with more liquidity. You can also hold the BTC against the futures onsite so there is no margin risk. There is exchange risk, but ftx is a solid exchange. They came from a reputable fund. Their names are known. They're backed by institutional money and they kicked off from binance. You can also do that arb on binance, which is a rock solid exchange, but I'm not sure how they treat US citizens. They just kicked me off for being a US person, but they have a US Exchange.
 
Nah, I just wouldn't risk without holding the bitcoin myself and using an exchange with a real history. I dont trust these exchanges, I dont care who backs them, unless its a soverign state. I have seen just too many exchanges dissapear overnight and clients be left holding the bag to pick up nickels in front of a steamroller. The CME is too big to fail and the US Treasury knows it, so they would back any clearing issues. I also know a thing or two about safely storing the coins myself
 
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