Lab notebook 1. Paper only.

The arbitrage lab

Learn how price gaps work by working them out by hand, then write a small bot that only ever trades on paper. No exchange, no money, no keys.

start with 1 Coin A

1 × 16.40 = 16.40

16.40 × 0.0612 = 1.0037

1.0037 × 0.9975 = 1.0012

Looks like a gap of 0.12%.

each leg keeps 0.999

1.0012 × 0.999³ = 0.9982

gone, and 0.18% under

Three small fees ate the whole loop. That is chapter 3, before any code. All figures here are made up.

Chapters

Two prices, one coinstart herep. 3
Why the same coin costs slightly different amounts in two places.
Measuring a gapp. 11
Bid, ask and mid, and which of them you could use.
The fee stackp. 19
Trading fees, moving fees, and the part most tutorials skip.
Depthp. 28
How much a listed price is good for before it moves.
The clockp. 36
Coins take time to move, and a gap does not wait for them.
The trianglep. 44
Three coins on one exchange: the loop drawn above, done properly.
A paper botp. 52
Replay a recorded order book and fill orders on paper.
Why most gaps are gonep. 63
Who else is looking, and how fast they are.
Reading a bot's sales pagep. 71
Use what you now know to question the claims.

On the bench

# paper_loop.py: paper only.
# No imports, no network, no keys.
# The rates and the fee are made up.

RATES = [("A>B", 16.40),
         ("B>C", 0.0612),
         ("C>A", 0.9975)]

def walk(units, fee=0.0):
    for leg, rate in RATES:
        units = units * rate * (1 - fee)
        print(f"{leg}  {units:.4f}")
    return round(units, 4)

print("before fees", walk(1.0))
print("after fees ", walk(1.0, fee=0.001))

No imports on purpose. With nothing imported, it has no way to reach an exchange. Change the fee and find where the loop turns over.

A>B  16.4000
B>C  1.0037
C>A  1.0012
before fees 1.0012
A>B  16.3836
B>C  1.0017
C>A  0.9982
after fees  0.9982

Chapters

On the bench

Rules of the bench