Complete Guide to Cryptocurrency Arbitrage on Bybit

Cryptocurrency arbitrage is a proven strategy for profiting from price fluctuations of identical assets across different markets. On the Bybit platform, this method has become more accessible thanks to specialized tools that allow placing orders simultaneously on the spot market and derivatives market. Understanding the principles of crypto arbitrage will help traders more effectively capitalize on short-term opportunities.

The most popular arbitrage approaches include three main types: arbitrage between spot and futures contracts, funding rate-based strategies, and exploiting price spreads.

Types of Cryptocurrency Arbitrage: From Theory to Practice

Modern crypto arbitrage has developed into two main directions, each with its own mechanics and motivation for use.

First Option: Profit from Funding Rates

This method is based on understanding the funding mechanism in perpetual contracts. When many traders take long positions, longs pay a fee to short position holders (positive funding rate). Conversely, shorts pay longs when the rate is negative.

Suppose the BTCUSDT contract has a positive funding rate of +0.01%. This means that long position holders pay a small amount to short holders every hour. Here’s the opportunity: simultaneously buy BTC on the spot market and open short positions for the same amount in contracts. This hedging allows earning funding fees while remaining immune to price changes of the asset. When funding is negative (shorts pay longs), the tactic reverses: short on the spot market plus long in contracts.

Second Option: Exploiting Price Spreads

This approach is based on simple logic: the same asset is traded at different prices on the spot and futures markets. If BTC is cheaper on the spot market compared to the BTCUSDC futures contract, you can buy low on the spot and sell high in futures.

The math is straightforward: at the contract’s expiry, its price converges to the spot price. This natural market balancing guarantees a profit equal to the difference, provided it is large enough to cover fees.

Bybit Platform Capabilities for Arbitrage

Bybit has developed a special tool that simplifies executing crypto arbitrage for users. The tool integrates the two markets into a single interface, allowing control and execution of orders simultaneously.

Main features:

Funding rate ranking displays contract pairs sorted by the highest rates, speeding up the search for the most profitable opportunities for earning fees.

Spread ranking shows price gaps between spot and derivative markets for various assets. Traders can instantly identify the most attractive pairs to exploit the difference.

Simultaneous trading of two parts: one interface shows price movements and liquidity for both instruments, enabling the execution of both orders with a single action.

Smart Rebalancing Technology:

When placing orders on both sides, the system checks every two seconds whether the same amount of contracts has been executed for both parts. If execution becomes unbalanced (e.g., 0.5 BTC executed on one side and 0.4 BTC on the other), the system automatically places a market order to compensate for the difference.

This function operates 24 hours a day. After this period, unfilled orders are automatically canceled. This prevents significant portfolio imbalance, reducing liquidation risk.

Extended Collateral Asset Base:

Through a unified trading account (UTA), traders can utilize over 80 assets as margin for arbitrage trading. This means if a trader has a BTC deposit, they can use this BTC as collateral to hold long positions on the spot market and short positions in contracts simultaneously.

For example: if BTC is priced at 30,000 USDT, with a 30,000 USDT margin, the trader can place an order to buy 1 BTC on the spot and simultaneously short 1 BTC in contracts, earning profit from the funding rate. Price fluctuations of BTC do not increase liquidation risk because the positions are hedged.

Step-by-Step Placement of Arbitrage Orders

Placing orders on Bybit is simplified for quick entry into a position.

Step 1: Go to the trading section, select Tools, and click Arbitrage. The platform will suggest a list of pairs sorted by funding rates or spreads.

Step 2: Choose an asset based on an attractive funding rate or price gap. The system will show potential profitability based on current conditions.

Step 3: Decide whether to take a long (buy) or short (sell) position for the first part. The system will automatically determine the direction for the second part on the opposite side.

Step 4: Select order type — market (immediate execution at current price) or limit (execution at specified price). When entering the price, you can refer to the displayed funding rate or spread to estimate potential profit.

Step 5: Enter the order volume. You only need to specify one part — the second will be executed automatically with the same volume.

Step 6: Enable smart rebalancing (enabled by default). This helps maintain position stability throughout the execution.

Step 7: Click the confirmation button for both parts simultaneously. The orders are placed.

Position Monitoring: Active arbitrage orders can be viewed in Tools → Active. After full execution, the information moves to Tools → History.

To manage spot assets and derivative positions, go to the respective spot trading and derivatives trading pages. There, you can view balances, monitor positions, and income from funding fees.

Key Questions About Arbitrage

When is the best time to place arbitrage orders?

Optimal moments include: when there is a noticeable spread between spot and futures markets (a larger spread indicates higher potential profit); large orders where price impact is significant; market action and volatility, when prices change rapidly between instruments.

How is potential profit calculated?

The spread is simply the difference: selling price minus buying price. The spread rate is expressed as a percentage: (selling price − buying price) / selling price. The annual percentage rate (APR) for funding is calculated as the absolute value of the three-day total funding rate divided by 3, multiplied by 365, then divided by 2. This allows comparison of different opportunities on a common basis.

Can arbitrage be used to close existing positions?

Yes, arbitrage supports both opening and closing positions. This is especially useful when you need to simultaneously reduce a spot position and increase a futures position.

Is the feature available for sub-accounts?

Yes, if sub-accounts are activated as a unified trading account (UTA). This expands capital management options for professional traders.

Is arbitrage available in demo mode?

Currently, the tool is not available in demo trading. It can only be tested with real capital on the main account.

What are the liquidation risks due to execution imbalance?

If one part of the order is executed while the other remains pending, imbalance occurs. This can lead to uneven margin impact, increasing liquidation risk. That’s why it is recommended to keep smart rebalancing enabled — it checks for imbalance every 2 seconds and corrects it with market orders.

What margin mode is used?

Arbitrage works only in cross-margin mode on a single trading account. This means all available capital is considered as shared collateral for both positions.

Why might orders not execute?

The main reason is insufficient margin in the account to execute both parts simultaneously. The system checks if there is enough free capital to cover both orders. If not, the orders are rejected. Solution: reduce order size or add funds to the account.

What happens if smart rebalancing is turned off?

Without rebalancing, the system will not automatically adjust for imbalance. Orders will remain active without cancellation during the day. You will have full control but also full responsibility for monitoring and manually correcting imbalance.

Why does the smart rebalancing stop after 24 hours?

If both parts of the order are not fully executed within 24 hours, the rebalancing feature automatically stops, and all unfilled orders are canceled. This prevents long-standing open positions.

Important: Crypto arbitrage does not guarantee profit.

Users still face risks. Unexpected price drops or incorrect funding rate assessments can lead to losses instead of gains. Although useful, the smart rebalancing places market orders that may be executed at worse prices than expected. Traders are responsible for actively managing their positions and closing them — the system does not do this automatically.