How Does Transaction Latency Affect the Profitability of High-Frequency Basis Arbitrage?
Transaction latency ⎊ the time delay in order submission and execution ⎊ is critical for high-frequency basis arbitrage. Since arbitrage opportunities are fleeting and quickly closed by competitors, even a few milliseconds of delay can mean the difference between capturing a profit and missing the trade or even incurring a loss.
Lower latency is essential to be the first to exploit and close the mispricing.
Glossar
DeFi Arbitrage
Mechanism ⎊ DeFi arbitrage exploits temporary price discrepancies for the same asset across diverse decentralized exchanges (DEXs), capitalizing on market inefficiencies inherent in automated market maker (AMM) models.
Transaction Latency
Impact ⎊ Transaction Latency is the total time elapsed from when a user broadcasts a transaction to when it is confirmed and finalized within a block on the blockchain ledger.
Arbitrage Opportunities
Exploitation ⎊ Arbitrage Opportunities in crypto derivatives arise from temporary price dislocations between related instruments across different venues or between the derivative and its underlying spot asset, demanding rapid, automated execution to capture the spread.