I'm going to go to the bathroom.

In the first article, we will talk about how the lead-lag effect can be used to leverage. This article mainly focuses on cross-exchange leverage. Its basic principle is to leverage the price lag between different exchanges ("lead-lag effect"), because the market liquidity, transaction speed and network latency of different exchanges often cause the price of the same coin to vary in different exchanges.

How can we leverage the Lead-Lag effect?

1. Monitoring the price difference

Firstly, the bidder needs to monitor the price difference between different exchanges in real time, especially the bid and ask prices. By tracking the bid and ask price of exchange A versus exchange B, it can be assumed that there is a bid opportunity if exchange A sells at a price lower than exchange B buys. For example, exchange A sells at 10,000 USDT and exchange B buys at 10,100 USDT and the price is 100 USDT different, which is a potential bid opportunity.

2. Cross-exchange execution

Once a leverage opportunity is found, the leveraged buyer should buy the asset at a lower selling price exchange (e.g. exchange A) and sell at a higher buying price exchange (e.g. exchange B); this can be done through API automation to ensure quick execution and maximize price differentials. However, when executing the trade, transaction costs (e.g. handling fees and slippage points) and price shocks must be considered. Assuming that the handling fee of exchange A is 0.1%, and the handling fee of exchange B is 0.2%, and the market exists, the slippage point exists. For example, when exchange A buys 1 token, the actual transaction price may rise due to the execution of a large order, assuming a slippage of 0.1%; then the actual transaction price will be 0.1% higher than expected, resulting in an increase in the purchase cost.

If you take into account slippage and handling fees, the actual purchase costs and sales revenue will be a gap from the expected ones.

3. Flattened

The last step of the leverage is to break even. For example, after a while, the exchange A buys at 10,100 USDT and the exchange B sells at 10,150 USDT, and when the price difference narrows from 100 USDT to 50 USDT, the process automatically breaks even. Of course, in some cases, the spread may continue to expand, and you can continue to trade knowing that the funds are exhausted.

Problems and strategies for solving them in practice

1. There is no opening opportunity

Due to the presence of a large number of brokers and market makers, the price difference between the different exchanges will not be much, otherwise it will be quickly leveled. This is the biggest problem faced by leveraged trading.

How to solve it:

• Waiting for the Natural Formation of the Price Difference: The digital currency market is highly volatile, often with short price differences, and patience is the best way to deal with this problem.
• Using the maker policyThe following is a typical example of this type of transaction: a transaction is initiated on an exchange's order book, withdrawn and adjusted as the price changes, and the transaction is completed by the other party.
• Monitor more trading pairsThe mainstream currencies are not the only ones to be targeted, as their leverage opportunities have often been captured by large numbers of leverage players, resulting in a narrowing of the price gap. Cold and new upper currencies may be worth considering because of their poor liquidity, which can result in larger price differences and less competition.
• Choosing a small exchangeSmall exchanges are often more prone to large price differences due to poor liquidity and slower price adjustment. In this case, the broker can choose to place an order and pre-execute it, from which to make a profit.
• Choose a high-threshold exchangeSome exchanges require strict KYC verification, such as Upbit in South Korea. These are places where ordinary traders find it difficult to enter, and where opportunities for leverage are more, of course, they need to find their own way to overcome the difficulties.

2. Too much difference between cost and monitoring

Order failures are a common problem when the process finds that the spread is not as large as the actual transaction, often at a loss. The quickest response and speed of execution is crucial.

How to solve it:

• Optimize network and server locationFor example, choosing a smaller exchange with less liquidity for operations can slow down the market's reaction rate and thus grab the lead.
• Asynchronous processing with WebSocket: Using asynchronous code and WebSocket to connect the market, you can receive price information in real time and react quickly, avoiding missed opportunities due to information lag.

3. One-legged deal

A one-legged transaction is one in which one party completes the transaction while the other fails to do so, which usually happens in a rapidly fluctuating market. If only one party orders successfully, the broker faces a leverage risk.

How to solve it:

• Set up a reasonable stop-loss mechanism: When a one-legged trade occurs, a stop loss can be set, and timely clearing is an effective means of reducing risk.
• Order at market priceThe problem is that the difference in the price of the transaction is uncontrollable and can lead to losses.

4. Single stock exchanges are full

When the spread persists for a long time, the funds of an exchange are quickly bought out and the broker may not be able to continue with the leverage operation. In this case, the broker needs to quickly transfer funds or adjust holdings.

How to solve it:

• Currency exchange operationsIn the case of a single market, the liquidity of the funds can be increased by avoiding the accumulation of funds in the single market.
• Waiting for the spread to shift: Given the time cost of the withdrawal, waiting for the return of the difference is also an option.

Demonstrate the code

The code is not real disk code and is for demonstration purposes only, as it does not take into account the number of disks, API access failures, asynchronous order acceleration, etc.

// symbol 是套利的交易对，比如 BTC/USDT
let symbol = "BTC_USDT";

// 设置手续费、滑点、开仓和平仓的利润率
let fee = 0.1 / 100;      // 0.1% 手续费
let slippage = 0.1 / 100; // 0.1% 滑点
let entryThreshold = 0.005; // 开仓阈值：价差大于0.5%时开仓
let exitThreshold = 0.001;  // 平仓阈值：价差回归到0.1%时平仓

// 每次循环执行的具体操作
function OnTick() {
    // 获取各个交易所的行情数据
    let tickers = exchanges.map(exchange => exchange.GetTicker(symbol));

    // 计算套利机会（基于利润率）
    // profitAB: 从交易所0买入，从交易所1卖出
    const profitAB = (tickers[1].bid - tickers[0].ask) / tickers[0].ask - fee * 2 - slippage * 2;
    // profitBA: 从交易所1买入，从交易所0卖出
    const profitBA = (tickers[0].bid - tickers[1].ask) / tickers[1].ask - fee * 2 - slippage * 2;

    // 打印日志
    Log(`Tickers: Exchange0 Buy: ${tickers[0].ask}, Exchange1 Sell: ${tickers[1].bid}, Profit AB: ${profitAB} USDT`);
    Log(`Tickers: Exchange1 Buy: ${tickers[1].ask}, Exchange0 Sell: ${tickers[0].bid}, Profit BA: ${profitBA} USDT`);

    // 根据利润判断是否执行套利操作
    if (profitAB > entryThreshold) {  // 当利润大于开仓阈值时开仓
        Log(`套利机会：从交易所0买入BTC，从交易所1卖出，利润：${profitAB} USDT`);
        executeArbitrage(0, 1, tickers[0].ask, tickers[1].bid, profitAB);  // 从交易所0买入并在交易所1卖出
    } else if (profitBA > entryThreshold) {
        Log(`套利机会：从交易所1买入BTC，从交易所0卖出，利润：${profitBA} USDT`);
        executeArbitrage(1, 0, tickers[1].ask, tickers[0].bid, profitBA);  // 从交易所1买入并在交易所0卖出
    } else if (profitAB < exitThreshold) {  // 如果价差回归，平仓
        Log(`平仓：从交易所0买入并在交易所1卖出的套利机会，利润已回归至平仓阈值`);
        closeArbitrage(0, 1, tickers[0].ask, tickers[1].bid); // 执行平仓操作
    } else if (profitBA < exitThreshold) { 
        Log(`平仓：从交易所1买入并在交易所0卖出的套利机会，利润已回归至平仓阈值`);
        closeArbitrage(1, 0, tickers[1].ask, tickers[0].bid); // 执行平仓操作
    } else {
        Log("没有足够的利润进行套利或平仓");
    }
}

// 执行套利交易
function executeArbitrage(buyExchangeIndex, sellExchangeIndex, buyPrice, sellPrice) {
    let buyExchange = exchanges[buyExchangeIndex];
    let sellExchange = exchanges[sellExchangeIndex];

    // 获取账户余额（假设为BTC余额）
    let accountBuy = buyExchange.GetAccount();
    let accountSell = sellExchange.GetAccount();
    
    let amountBTC = Math.min(accountBuy.Balance / buyPrice, accountSell.Amount);

    // 假设每次交易量为 0.1 BTC
    let amount = Math.min(amountBTC, 0.1);

    // 确保交易量充足
    if (amount <= 0) {
        Log("余额不足，无法进行套利");
        return;
    }

    // 在买入交易所挂单买入
    Log(`在交易所${buyExchangeIndex} 下单买入 ${amount} BTC @ ${buyPrice}`);
    buyExchange.Buy(symbol, buyPrice * (1 + slippage), amount);

    // 在卖出交易所挂单卖出
    Log(`在交易所${sellExchangeIndex} 下单卖出 ${amount} BTC @ ${sellPrice}`);
    sellExchange.Sell(symbol, sellPrice * (1 - slippage), amount);
}

// 平仓操作
function closeArbitrage(buyExchangeIndex, sellExchangeIndex, buyPrice, sellPrice) {
    let buyExchange = exchanges[buyExchangeIndex];
    let sellExchange = exchanges[sellExchangeIndex];

    // 获取账户余额（假设为BTC余额）
    let accountBuy = buyExchange.GetAccount();
    let accountSell = sellExchange.GetAccount();

    let amountBTC = Math.min(accountBuy.Balance / buyPrice, accountSell.Amount);
    let amount = Math.min(amountBTC, 0.1);

    // 在买入交易所挂单卖出
    Log(`在交易所${buyExchangeIndex} 平仓卖出 ${amount} BTC @ ${buyPrice}`);
    buyExchange.Sell(symbol, buyPrice * (1 - slippage), amount);

    // 在卖出交易所挂单买入
    Log(`在交易所${sellExchangeIndex} 平仓买入 ${amount} BTC @ ${sellPrice}`);
    sellExchange.Buy(symbol, sellPrice * (1 + slippage), amount);
}

// 主循环
function main() {
    while (true) {
        OnTick();
        Sleep(1000); // 每秒钟执行一次
    }
}

Summary

Lead-Lag Moving Swap is a cross-exchange arbitrage strategy based on market lag response. By accurately analyzing market price differences and executing transactions quickly, the broker is able to make stable profits in the digital currency market. However, the success of this strategy depends not only on the design of the strategy itself, but also on good execution and a sensitive grasp of market timing. As market competition intensifies, the broker needs to continuously optimize strategies and techniques, improve the speed and responsiveness to maintain the continued effectiveness of the arbitrage opportunity.