Why Arbitrageur Trades Only as a Taker
#arbitrage#terminal
The maker fee is usually lower than the taker fee. So a natural question arises: why does Arbitrageur not place waiting limit orders to reduce trading costs?
The reason lies in how an arbitrage bundle is executed.
What matters in arbitrage is not just getting a good price on one exchange, but opening or closing matched volumes on both legs. Saving on the fee loses its point if one position is executed and the other stays unfilled.
The two legs must match each other
In an arbitrage bundle, one position offsets the directional movement of the other.
- on the first exchange we open a long equivalent to 50 coins;
- on the second — a short equivalent to 50 coins.
It is the quantity of the underlying asset that must match, taking the contract specifications into account. The value of the positions in USDT may differ because of the price difference.
If the long is filled for 50 coins and the short for only 30, there is an imbalance of 20 coins. This part of the long is not offset by the second leg, so the result starts to depend on the direction of the price.
The terminal's job is to minimise the likelihood and the duration of such an imbalance.
What restrictions the exchange sets
An exchange does not allow orders of an arbitrary volume. Each instrument has requirements for order size.
Minimum order size
The minimum order size is the smallest volume the exchange allows in a new order of the corresponding type.
It can be set in coins or contracts. A minimum order value may also apply.
For example, if the minimum volume is 10 coins, the exchange will not accept an order to open a position of 3 coins.
Order value = price × quantity
Separate rules and exceptions may apply on a venue for closing positions.
Volume increment
The increment, or volume step, determines in what portions the order size can be set.
If the step is 5 coins, the allowed volumes are 5, 10, 15, 20 and so on. An order for 12 coins does not meet this requirement.
The minimum size and the step apply together.
- minimum volume — 10 coins;
- step — 5 coins;
- allowed volumes — 10, 15, 20, 25 and so on.
Two exchanges may have different restrictions for the same underlying asset. So the bundle volume has to suit both venues.
These parameters are published in the exchanges' instrument specifications. In Arbitrageur, the minimum size and the volume step for each leg can be seen when creating an arbitrage bundle. This helps you choose a lot that meets the requirements of both venues right away.
What happens when working as a maker
A maker order is placed in the order book and waits for matching trades.
It can:
- be filled completely;
- be filled partially;
- remain unfilled.
Placing an order on its own guarantees neither the timing nor the full volume of execution.
Here it is important to distinguish between a limit order and maker execution. A limit order that is executed immediately against counter-offers works as a taker. This article is specifically about waiting orders that provide liquidity.
Why placing maker orders on both legs is risky
| Exchange A | Exchange B | |
|---|---|---|
| Planned action | Open long | Open short |
| Volume | 50 coins | 50 coins |
Waiting limit orders are placed on both venues.
On exchange A a counterparty arrives and fills your purchase completely. On exchange B there is no buyer for your short yet.
| Exchange A | Exchange B | |
|---|---|---|
| Position actually opened | Long 50 coins | 0 coins |
Instead of a balanced bundle, you temporarily have a standalone long.
If the price starts to fall, the loss on this position will not be offset by a short. And to open the second leg urgently, you may need taker execution at an already less favourable price.
Even if both orders fill gradually, their execution does not have to happen in equal portions and at the same time. Two exchanges do not execute your bundle jointly as a single trade.
Why “maker on the first leg, taker on the second” also causes difficulties
A more manageable approach is to wait for the maker order on the first exchange to fill and immediately open the corresponding volume with a market order on the second.
But this brings the problem of partial fills.
The total volume of the original order may suit both exchanges, while an individual filled part may not.
An example of mismatched restrictions
| Parameter | Exchange A | Exchange B |
|---|---|---|
| Minimum opening volume | 1 coin | 10 coins |
| Volume step | 1 coin | 5 coins |
We plan to open 50 coins on each leg. This volume suits both venues.
On exchange A we place a maker order to buy 50 coins. So far it has filled for only 7 coins.
Now, to balance the bundle, we need to open a short of 7 coins on exchange B immediately.
- 7 coins is less than the minimum of 10;
- 7 is not a multiple of the step of 5.
It is impossible to open exactly the matching volume on the second leg.
If you open 10 coins, you get an excess short of 3 coins. If you wait for the first order to fill further, the 7 coins already bought stay unhedged while you wait.
A partial fill follows the rules of the first exchange, but it does not have to meet the requirements of the second.
Why small remainders are especially inconvenient
Suppose the maker order on the first exchange filled for 13 coins. On the second, an opposite position of 10 coins was opened.
13 − 10 = 3 coins
The difference is small, but it cannot be evened out with a separate opening order on the second leg: the minimum size on that venue is 10 coins.
There are different ways to manage the remainder: wait for further fills, adjust the positions with larger operations, or reduce the first leg if its rules allow it. But each option requires additional decisions, trades or time.
This is already a separate execution-management task. Simple rounding does not remove the imbalance — it only changes its size or direction.
Why Arbitrageur uses taker execution
Arbitrageur works with the liquidity that is already available in the order books.
Instead of waiting for other participants to fill your orders, the terminal sends operations for execution against existing counter-offers.
This approach makes it possible to:
- choose in advance a volume that meets the requirements of both exchanges;
- calculate the weighted average prices for this volume;
- shorten the time between the executions of the two legs;
- reduce dependence on random partial fills of waiting orders.
Arbitrageur's priority is the matched execution of the bundle against available liquidity, taking fees into account.
A lower maker fee on its own does not ensure a better result. Its advantage can be offset by price movement while waiting for the second leg or by the cost of evening out the positions.
How available liquidity is taken into account
Arbitrageur calculates the executable spread from the order books for the lot size you set.
For example, if you are going to open 50 coins on each leg, comparing the best prices is not enough. You need to determine at which levels the whole purchase volume and the whole sale volume can be executed.
If the available data and order volume are not enough for the full lot, the situation is not shown as a calculated arbitrage opportunity for that size.
So an attractive difference in last prices does not yet mean that the terminal will show an opportunity to execute your bundle at it.
Does a market order guarantee full execution
A market order is designed for immediate execution against available offers. With enough liquidity and the exchange's requirements met, it usually allows the whole specified volume to be executed without waiting for counterparties.
But there is no absolute guarantee. The orders in the book can change before your order is processed, and the exchange may apply price limits or slippage protection. A partial fill, cancellation of the remainder or rejection of the order are all possible.
For example, Bybit processes market orders through an IOC mechanism with price limits: the available part is executed immediately, and the unfilled remainder is cancelled. Such a mechanism does not promise execution of the whole volume under all conditions.
So the preliminary calculation from the order book and the actual execution are related but different stages. The taker approach reduces the risks of waiting, but it does not turn operations on two exchanges into one indivisible trade.
What this choice means for the user
Working as a maker can reduce fees, but it requires managing the order queue, partial fills and residual positions. For a cross-exchange bundle these tasks are complicated by differences in minimum sizes and order steps.
Arbitrageur uses taker execution to work with a pre-calculated volume and the counter-liquidity available on both legs.
A trade should be assessed by the result of the whole bundle: execution prices, fees and matched volumes. This is what Arbitrageur's approach is built on.