How lucrative is crypto arbitrage? Since the service became available in South Africa, it has consistently outperformed other investments.
The graph below shows the gross spread from crypto arbitrage trading over the past year. The green line is the spread or gross profit from buying bitcoin (BTC) or the US-pegged stablecoin USDC abroad and selling those assets in SA.
The gross spread (before costs) has widened to 2-3% in recent months, from 1-2%. There are several reasons for this, chief among them being the decision among some overseas providers to cease accepting deposits from South Africa, partly because of SA’s greylisting by the Financial Action Task Force (FATF). That reduced the volume of crypto arbitrage trades, thereby making it more profitable.
Like most providers, Future Forex, a registered FSP (Financial Services Provider), briefly paused its crypto arbitrage service in response to overseas partners closing their doors to South Africans.
This gave it time to put mechanisms in place to prevent any future interruptions to its arbitrage service. “We have resumed trading and now have three offshore banking providers in different jurisdictions, so we can switch between them in the event that one of them decides not to accept deposits from SA,” says Future Forex CEO and qualified actuary Harry Scherzer.
“We are using reputable providers, which is important given the greylisting of SA by the FATF, and we are now in a position to be able to offer clients continuity of service in the event of any future disruptions. We think that is a huge competitive advantage.”
Investment comparison
The following chart from Future Forex compares the investment returns over one year from crypto arbitrage, the JSE All Share index, the S&P 500, and an 8% annual interest account. Crypto arbitrage offered the best returns by far, turning starting capital of R200 000 into R298 350 over 12 months.
What’s notable about the crypto arbitrage returns is the relatively low risk. All Future Forex trades are fully hedged, so profits are locked in the moment the trade is executed. “We’ve never had a losing trade and profits are known at the onset of any trade,” explains Scherzer.
Another critical advantage in optimising returns is the ability to choose between BTC and USDC for trading, whichever offers the better profit potential.
Scherzer says that Future Forex’s client-first approach has helped the company become SA’s largest crypto arbitrage provider, with more than R14.5 billion in trades concluded since inception. “We’ve built our operating model around the needs of clients and have ensured full transparency and alignment of interests with our clients from day one. I’d argue that this is the reason we’ve grown to be the largest and most trusted arbitrage provider in South Africa.”
South Africans interested in crypto arbitrage are required to use their foreign allowances in the form of a R1 million a year Special Discretionary Allowance and the R10 million a year Approval for International Transfers (AIT).
Because of exchange controls, crypto assets such as BTC and USDC typically sell for higher prices in SA relative to overseas exchanges. Professional crypto arbitrage providers such as Future Forex can automate this and generate a profit for clients. You need tax clearance from the South African Revenue Service to qualify for the R10 million a year AIT. Future Forex has relationship managers and tax professionals on hand to perform this task for clients at no charge.
The minimum capital requirement is R200 000, though the higher the investment, the better the likely returns due to certain fixed costs (such as Swift banking fees) that decrease as a percentage of the total amount invested.
Future Forex charges 25-30% of net profits for this service, depending on the amount invested. “We don’t believe in management fees. Instead, we only take a share of profits to ensure that our interests are perfectly aligned with those of our clients,” adds Scherzer.
Regulation
Crypto arbitrage will be fully regulated by November 2023, with providers requiring a Crypto Asset Service Provider (CASP) licence in order to operate. This shouldn’t be an issue for some providers, like Future Forex, who have already submitted their CASP application in preparation for the change.
Scherzer says this is a step in the right direction for the industry. “We’re a registered financial services provider, and we take regulatory compliance seriously. We welcome regulation and have been working with the regulators to ensure safety of client funds throughout the industry. Protection of client funds is paramount.”
Risks
The key risks in crypto arbitrage trading typically are currency rate changes and crypto price movements while the trade is underway (trades are normally closed out within hours). However, Future Forex uses a fully hedged trading system, which ensures clients are not exposed to these market risks.
Arbitrage is a well-known low-risk trading strategy. Unlike other investments, arbitrage does not predict the price movement of an asset but instead capitalises on the price differences of an asset between different markets.
There are third-party risks, such as the potential for failure of a third party used to complete the trade (such as a bank or a crypto exchange), but Future Forex has mitigated these risks by choosing the most reputable providers after performing extensive due diligence on them.
Transparency
Future Forex prioritises transparency by blending technology with the personal touch of a relationship manager assigned to each client.
Each client has access to their own online dashboard which displays a real-time view of the progress of each trade and the balance in the account. The company also provides statements after each trade detailing the spread (gross profit), third-party fees, Future Forex fees and the net profit and balance.
An extract of the client dashboard is shown below:
Where to register: https://futureforex.co.za/register
Brought to you by Future Forex.
