# 5.7. Stage 3: Arbitrage Chain Trading Until now, the arbitrage system relied on the immediate availability of a profitable trade in just one step. Price spreads for trading pairs were monitored, along with other relevant parameters such as bid/ask spreads, volume, order books and expected slippage. Until now, the arbitrage system relied on the immediate availability of a profitable trade in just one step. Price spreads for trading pairs were monitored, along with other relevant parameters such as bid/ask spreads, volume, order books and expected slippage.
Our algorithm treats arbitrage as a mathematical problem, where possible solutions exist in a so-called solution room. The visualization above shows a simple two- dimensional representation of the Bitcoin/US-Dollar price spread. By selling BTC on Bitstamp, and buying the same amount on Bitfinex, we could theoretically increase the US Dollar value of our BTC holdings by 0.31%. Practically, however, more things need to be taken into account: • What is the spread between ask- and bid-orders on each exchange? • What is the trading volume on each exchange? • Which fees do the exchanges take? • How much funds are currently available? • What does the order book look like? What is the expected slippage for my order size? Future Gold Arbitrage’s algorithm is aware of all these constantly changing parameters. Data is continuously retrieved through exchange APIs, gets sent through normalization, and finally gets assigned its place in a multi-dimensional solution room The main innovation of stage 3 - Arbitrage Chain Trading - is possible by adding another dimension to the equation: time itself. Instead of just focusing on the current status of the market in the present moment, probabilistic predictions for the future get introduced. Due to the difficult nature of such an undertaking, the time-frame of these predictions are limited to a couple of seconds into the future. However, a few seconds is enough time to conduct a series of arbitrage trades, where the output of one trade becomes the input of the next one. The routes for possible arbitrage opportunities are exponentially increased, and there is huge potential to optimize for profitability by adding computing power to the system. More computing power means that more data can be arranged in a larger multi- dimensional solution room, and also that the time horizon of possible trade chains is increased. The Future Gold wallet will be upgraded with a feature, which enables anyone to contribute computing power and get rewarded with Future Gold coins. This creates a self-regulating ecosystem, where computing power gets added as long as it leads to increased arbitrage profits. This is where the decentralizing aspect of Future Gold Arbitrage’s arbitrage revolution starts to unfold. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.futuregold.us/ai-arbitrage-trade-system/5.-technical-details/5.7.-stage-3-arbitrage-chain-trading.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.