Small Trader Alpha - Another Real Strategy

Those who know don't care, and those who would care don't know.

Introduction

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I’ve subtitled this article with a quote I think describes these sorts of alphas very nicely. They exist because they require the same skills (although in a much less competitive form) as many HFT strategies but have extremely limited capacity. Those with the knowledge to build and operate these strategies have bigger fish to fry, and the group that would be happy to make 500k of absolute PNL on 1/10th the capital lacks the knowledge to take advantage of it.

Today we will be educating all those degens about small-capacity shitcoin arbitrage. There are a LOT of nuances that you can only really figure out by doing it in production, but I’ll do everyone a favor and break these components down in a nice digestible article.

We fully break down the strategy in this article with real exchanges/opportunities used as examples. These are the sorts of strategies that are great to start with because of how uncompetitive they are. They’re very well suited to one-man teams that are running their own capital / don’t require large capacity.

Index

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1. Introduction

2. Index

3. General Idea

4. Two Types, One Favorite

5. Fixed vs. Variable Costs

6. Hedging:

   1. Futures

   2. Spot Borrow

   3. Correlated Assets

7. Risks:

   1. Sweep Risk

   2. Transfer Risk

   3. Basis Risk

   4. Early Convergence Risk

   5. Inventory Threshold Risk

   6. Inventory Holding Risk

   7. API Failure Risk

   8. Counterparty Risk

8. Quantifying Capacity

9. Quantifying Risks

10. Conclusion

General Idea

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