There is no doubt that crypto arbitrage has become a popular way for South Africans to dip their feet into the crypto market without exposing themselves to the kind of price whiplash associated with crypto assets like Bitcoin and Ethereum.
Arbitrage traders seek to profit from price differences in the same asset in different markets. For example, Bitcoin can often be bought 2-3% cheaper on exchanges abroad than in South Africa.
Future forex is a South African company that has automated crypto arbitrage trading. All trades are fully covered so that clients are not exposed to currency or cryptocurrency price movements while a trade is taking place. This means that profits are locked from the moment the trade is executed and the profits are known even before each trade takes place.
The company was founded two years ago by Harry Scherzer, a registered actuary with a background in risk management, and Josh Kotlowitz, who has a master’s degree in space science and engineering. This unusual combination of skills has been applied to the development of machine learning systems that take advantage of the best profit opportunities for customers.
“We are very particular about removing risk and have done everything we can to remove market risk from the equation,” says Scherzer. “Our full coverage system is achieved by blocking the sale rate of the crypto asset at the same moment it is purchased. The risks that remain are small, such as the risk of a bank operating in forex or a particular cryptocurrency exchange failing.
“Arbitrage is a well-known low-risk business strategy.
“Unlike a typical investment, arbitrage does not predict the movement of the price of an asset, but it capitalizes the differences in the price of an asset between different markets.”
The profit sharing model aligns the interests of the client with those of the company
Future Forex only makes money when clients do. Share the profits and charge no trading or management fees. There are no hidden fees or costs. This profit-sharing model brings the interests of customers into line with those of the company.
The minimum investment amount is 100,000 rand. Clients can use their Single Discretionary Allocation (SDA) of R 1 million per year and Foreign Investment Allocation (FIA) of R 10 million, for a total of R 11 million per year. Future Forex’s profit share drops as clients invest more per arbitrage cycle, so those who invest larger amounts per trading cycle can expect to make more profits overall. Future Forex has experts available to assist clients with the FIA application process at no cost.
The graph below shows the progress of the bitcoin arbitrage ‘spread’ over time. It shows the price difference in Bitcoin between local and overseas exchanges, and that spread has dropped from 4% to 5% a year ago to 2% to 3% today. The graph also shows how trading costs decrease depending on the size of the funds being traded.
Watch the Future Forex webinar here.
Clients can nominate the desired profit target
“One of the advantages we can offer customers is that we allow them to designate the amount of profit they want to receive net of costs,” says Kotlowitz. “Obviously, if the market only offers a 2% to 3% margin, a customer who expects to earn 4% can only get one or two deals a year when the price gap shoots up.
“So we have relationship managers whose goal is to maximize returns for each client throughout the year considering their individual circumstances. They do this by helping clients set a minimum target performance, whereby trades are automatically executed if this performance is met or exceeded.
“Our goal is to make the entire process as automated and passive as possible.”
Although crypto asset providers are not regulated in SA at the moment, regulations are likely just around the corner. In anticipation of this, Future Forex has applied to the Financial Sector Conduct Authority (FSCA) to become a financial services provider (FSP) and has partnered with BeztForex, a licensed FSP, for the provision of currency conversion services.
What crypto assets are traded?
“Currently, we primarily trade Bitcoin and USDC, a crypto asset pegged to the US dollar, as they offer the highest returns and sufficient liquidity compared to other crypto asset arbitrage opportunities,” says Scherzer.
“We constantly monitor the market for other crypto arbitrage opportunities, but right now the arbitrage margin on most other crypto assets is not particularly attractive to our clients. However, that may change over time and we are always monitoring the situation. “
Why Crypto Arbitrage Is A Relatively Safe Way To Enter The Crypto Market
Most investors will have heard of the astonishing returns achieved in recent years by investing in Bitcoin, Ethereum, and other crypto assets. It is not unusual for these assets to show returns of several hundred percent a year, but what is also undeniable is the risk to capital that comes from investing in cryptocurrencies. For example, Bitcoin fell 84% in 2018 after peaking at just over R300,000 in December 2017. It has since rallied and surpassed that price level, but investors had to endure a nearly 50% drop. in price earlier this year.
“Cryptocurrencies are volatile and many people are understandably nervous about investing in them, given the potential for sharp drops in price,” says Kotlowitz.
“That is why crypto arbitrage is a much safer and less volatile way to participate in this market. We do not accept bets on the Bitcoin address; we simply seek to benefit from price mismatches between local and foreign exchanges, and have adjusted the process to the point where we have covered all price risks so that we can secure a profit from the moment we execute a trade. “
The crypto arbitrage market may not exist forever, Scherzer says. “Particularly once regulations come into effect and large institutional investors, who are currently shut out of the market due to lack of regulation, see an opportunity to profit from crypto arbitrage. This could reduce the spread to practically zero, so we may have a temporary opportunity. Our advice to South Africans is to seize this opportunity while it exists. “
Presented by Future Forex.
Moneyweb does not endorse any product or service that is advertised in sponsored articles on our platform.