Arbitrageurs Seem To Disappear
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Arbitrageurs Seem To Disappear

Friday, September 18, 2020 4:30 PM
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SCOTTSDALE, AZ / ACCESSWIRE / September 18, 2020 / New technologies…Every time we read about technological breakthroughs, the majority are imagining new opportunities - either amazing goods and services or price reductions for something that was previously much more expensive to produce.

But progress also has a dark side. Wherever humanity learned to do something in a new way and much more efficiently, a huge number of people lost their source of livelihood and was often doomed to starvation. One of the best examples is the extinction of the English weavers in the 1830s following the widespread introduction of automatic looms. Year after year, technologies penetrated deeper and deeper into various fields of activity, and none of the professions "protected from technological obsolescence" lasted too long. Today, new technologies are preparing to shake the foundations of the global financial system, but we will only talk about a small part of the upcoming changes.

You have probably heard the phrase "A market is like a living organism." To some extent, it is true. But until recently, there was not a single trading platform that would allow working with the market as a whole.

The fragmented markets of goods, securities, and currencies are a coherent whole for one simple reason - the presence of arbitrageurs. Thousands of traders scan the market looking for discrepancies between selling and buying prices in different markets, often for different currencies, testing the possibility of a series of profitable trades, and earning on the difference in prices. Billions of dollars are made by arbitrageurs from market inefficiencies, and until today, technology has been on their side. High-frequency trading and direct, like a light ray, fiber-optic communication lines connecting the US exchanges are examples of high technologies that have long been defining factors in this type of trading. The owners of the fastest systems and communication lines were in black. But the next technological leap is certain to become an avalanche sweeping away the arbitrage trading industry.

All trading platforms operate on the same principle. There is an orderbook with a buy and sell order for any trading instruments. On the most popular exchanges (such as NASDAQ, NYSE, JPX, LSE, etc…) trading instruments are traded vs the US dollar or the national currency depending on the jurisdiction of the exchange.

The same thing happens in the young crypto-assets market, all the most popular platforms provide trading instruments only vs most valuable cryptocurrencies such as BTC and ETH. In this case, available liquidity exists only in the trading pair where the order was placed. So, the liquidity transfer between trading pairs was performed by arbitrageurs.

Nick Price and his team of the exchange have developed Any2Any Quantum Trade Core. Any2Any trade core represents the market as a unified graph (a decision network with nodes as orders) and allows trading any available on the exchange asset vs any other. So, any asset on the exchange can be "quote currency" and market inefficiency disappears - the sort of arbitrageurs income. After a deal, absolutely all trading pairs are in a state where arbitrage opportunities are absent since all of them - absolutely all - were found and executed by the trading core within one deal.

The role of arbitrageurs in the new technology is played by the trading core itself, maximizing the volume of deals, and that's not all. The main difference of the new paradigm is that in any orderbook, the available liquidity can be seen not only for this pair but also considering possible options for the order execution in other trading pairs. This leads to a significant increase in the available liquidity visible to the trader, which, as we know, encourages traders to trade, focused on holding positions.

An additional effect of the multi-vector execution using Any2Any technology is the increased market resistance to manipulations. While on traditional exchanges it is possible to "pump/dump the rate" with a series of deals, and all available liquidity is predictable, the appearance of large orders in Any2Any Core often causes cascading cross executions of orders and the appearance of additional liquidity in the trading core itself.

It should be reminded that on traditional exchanges, the liquidity flow between assets is provided by arbitrageurs. Here, they are left behind, since their functions were assumed by the trading core. Of course, while new technology is being tested on the crypto market, the high-frequency traders continue to pocket millions of dollars, but as we have seen many times, technology tends to become a public standard.

Will arbitrageurs survive in the new quantum trading cores reality, or will they disappear like the ones who have lost the evolutionary battle? Perhaps, pretty soon, we will find out the answer to this question. The time has come for breakthrough technologies, and they are certain to change the way of even the most traditional things.


Samiran Mondal
[email protected]


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