Arbitrage Basics
New to arbitrage? The terminology can feel overwhelming at first, but don't worry — the DataMaxi team will walk you through the basics.
Let's start with the key terms.
What is Arbitrage?
Making profit from price differences of the same asset across different markets.
- Simply put, it's the strategy of "buying low and selling high" simultaneously.
- Example: Buy Bitcoin for $95,000 on an overseas exchange → Sell it for $96,200 on a Korean exchange, earning $1,200 in spread.
- The risk is low, but fast execution is crucial.
What is Kimchi Premium?
Short for "Kimchi Premium" — a phenomenon unique to Korean crypto markets.
- It occurs when crypto prices on Korean exchanges (Upbit, Bithumb, etc.) are higher than on overseas exchanges (Binance, etc.).
- For example, if Bitcoin is $95,000 overseas but $96,200 in Korea, there's a 1.26% kimchi premium.
- Why does it happen? Higher demand in Korea compared to overseas, or due to exchange rate fluctuations and deposit/withdrawal restrictions.
What is Funding Rate?
A mechanism in perpetual futures markets to balance long (bullish) and short (bearish) positions — think of it as an interest system.
- Positive (+) funding rate:
- When longs are dominant → long position holders pay a fee (funding) to short position holders.
- Negative (-) funding rate:
- When shorts are dominant → shorts pay longs.
- When the funding rate is high: It signals "lots of longs are betting aggressively" → can be seen as an overheating signal.
Beyond these basics, there are many more arbitrage-related terms depending on the strategy and market conditions.