Lesson

Spread arbitrage risks: widening instead of converging, liquidation and closed withdrawals

A spread is money nobody has taken. Sometimes because they were not fast enough, but more often because taking it is costly or dangerous. We look at the risks of spread trades and cases when neutral positions lost money — from a $300 ETH price gap between exchanges to the closure of BitMEX.

AuthorAntonio MerklePublishedOctober 31, 20269 min read

A spread trade is neutral to market direction, but not to what happens between its two legs. This lesson collects the risks of every scheme in the course: the cross-exchange perp–perp spread (lesson 4), spot–futures setups (lesson 5) and cash-and-carry (lesson 3).

The spread widens instead of converging

Entering at a 1.5% spread does not mean it goes to 0% next. On a thin market the spread easily moves to 3–6% and back, like the MOOUSDT pair in lesson 4. If the position has no exit rule, a widening spread becomes a loss waiting for a convergence that may never come. The exit rule — a target, a spread stop and a time limit — is set before entry, not after.

A squeeze on one exchange: a scenario

Perp + perp on an illiquid coin: a long on exchange A, a short on exchange B, $1,000 of margin each, 3× leverage — a $3,000 position per leg. A squeeze starts on exchange B: shorts close en masse, the price there jumps 35%, while on exchange A it rises only 30%.

1. 1

   The short on B is liquidated

   The liquidation threshold is about a 32.8% rise, and the squeeze exceeded it. Almost all of the $1,000 margin is gone.
2. 2

   The long on A is left unhedged

   It is up about $900, but it is now an open bet on a rise: after a squeeze the price often pulls back, and the profit disappears.
3. 3

   The result

   Instead of a neutral position — a loss on the short’s margin and an open long. The spread the trade was built on did not even have time to converge.

Closed deposits and withdrawals

Cross-exchange spreads are closed by people who buy a coin on one exchange, transfer it and sell it on another. If deposits or withdrawals of the coin are suspended on one exchange — because of a network upgrade, wallet problems or a delisting — that chain breaks and prices live their own lives. Before entering, check the coin’s status on both exchanges’ deposit and withdrawal pages. If transfers are closed, a large spread is not an opportunity but a symptom.

October 10, 2025

• The market liquidated about $19 billion of positions in a day — the largest crash on record according to Coinglass.
• Prices on exchanges diverged: according to a Bitwise portfolio manager, the ETH price gap between Binance and Hyperliquid at times exceeded $300. Spread positions on those exchanges got a huge divergence instead of convergence in those minutes.
• ADL on some venues closed profitable positions; according to BitMEX’s annual report, market makers’ short hedges against spot were hit.
• USDe on Binance fell below 66 cents, and positions using it as collateral were liquidated; Binance later compensated affected users.

Risks even in cash-and-carry

Basis convergence is guaranteed at expiry, but not before. Until then the basis can widen and the short may need margin if the price rises. Spot and margin sit on the exchange, so the trade depends entirely on its reliability. Exchanges do leave the market and close contracts: BitMEX, the creator of the perpetual swap, delisted and settled its main contracts on September 16, 2026 and stopped trading a week later.

About the author

Antonio Merkle

Crypto expert, arbitrage trader and investor

Crypto expert and hands-on crypto arbitrage trader, investor and software developer with over 20 years of experience. On the P2P.Army blog he covers exchange news, P2P and cross-exchange arbitrage.

• Crypto arbitrage
• P2P arbitrage
• Cross-exchange arbitrage
• Crypto exchanges
• Investing
• Software development

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