Quantitative Investment Strategy — The Transaction Strategy

GAEA Investment Research Center — “Transaction” refers to the way to work about digital currency trading. The basic principle of transaction is to buy a certain currency on a digital currency exchange with a relatively low currency value, and then sell the same amount of that currency on an exchange with a relatively high currency value, thereby earning the income difference. How does that work specifically? Let us find out.

By using BTC as an example, we selected the prices of these three exchanges as comparison at the same time.

Figure 1: BTC Price of each exchange at a certain price.

Figure 1 shows a difference of 78 yuan per BTC between Binance and Huobi exchanges. Thus, the following procedure can be carried out:

1. Enter Huobi exchange to recharge, then buy X BTCs;
2. Cash out X BTCs into the wallet and recharge at Binance Exchange;
3. Sell X BTCs on the Binance Exchange;
4. Withdraw Renminbi or transfer to the low-cost recycling market.

These steps sounds really simple, why not we start making money this way?

It takes some time to withdraw from the exchange, and sometimes it faces problems such as wallet maintenance. We cannot determine the amount of time needed for the currency sell off until it is sold. Perhaps when the price moves to another platform, the spread has disappeared, and all our effort is a waste. Therefore, the risk of one-way handling the situation is still relatively large.

This shouldn’t stop you from doing the transactions as you can hedge in both direction because it is actually the sale and purchase operation. In order to carry out the process smoothly, you need to prepare the digital currency and RMB in advance for the exchange to be hedged;

For instance, suppose you have 1 million RMB and 5 BTCs in Huobi and Binance, the present Binance price will be higher than Huobi. You can sell one BTC in Binance and buy a BTC in Huobi; thus, the total amount of Bitcoin in your total assets would not change, but the RMB balance will increase.

As long as the spread exists, the process can be repeated. Since the amount of currency held during the transacting-and-growing process remains the same, which is always 5, the risk can be controlled and the time for the exchange withdrawal is also saved. However, you want to make money, you have to pay attention to the market.

That’s right, transaction is not easy. Most of the transactors have other jobs, and they do transaction as a sideline, and they don’t spend much time checking on the market. Now that technology is highly developed, there is nothing that the software can’t solve.

Let’s check out how the software works.

GAEA’s Arbitrage Tool View

1. Choose the exchanges and trading pairs that you want to hedge against;
2. Pre-set the spread, the number of purchases, and click to start arbitrage;
3. When the spread is reached, the system buys and sells at the same time, and it will automatically arbitrage;
4. As the spread is met, the system continues to execute and earning the difference between the spreads.

Isn’t that convenient? In contrast, the software is likely to seize arbitrage opportunities, with lower risk. It is not necessary to make transactions one by one and compare to the market’s website, as it is easier to implement transaction arbitrage.

Note: GAEA trading tools will be officially launched on the September 16, including the transaction arbitrage tools, so fellow transactors should come and join this experience.

Carrying Out Transactions

Finally, as a friendly reminder, these are some issues that you need to pay attention to while carrying out transactions,

1. The transaction fee should be lower than the exchange, and the difference between the two exchanges should be greater than the transaction fee.
2. The transaction has to support exchanges, so that there are room for hedging options, and at the same time, hedging can be carried out on multiple platforms.

Figure 3

3. The exchange should select the depth of the market. Figure 3 and 4 shows the depths of the two major exchanges at the same time. Figure 3 is obviously better than the Figure 4, for hedging.

Figure 4

Referring to this, we now have some understanding on transactions.

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