⏳Rebalancing frequency
Rebalancing frequency strategy
The algorithm's arbitration frequency has to be accurately defined, for several reasons. Firstly, it is important to understand that arbitraging at a higher frequency costs more in blockchain fees, and these costs are linear.
Similarly, arbitraging at a higher frequency costs more in slippage fees, because the micro variations in the price will have a greater impact on the trades needed for the algorithm to function properly. However, this loss is not linear.
Here are some tests carried out with our in-house backtesting software:
High-frequency arbitration - Once an hour ⏲️
Here we see that slippage costs (in purple) are expensive for the algorithm. We're talking about more than 5%/year, which is a lot. A frequency that is too high therefore costs too much. Note that this backtest was carried out on Arbitrum, a low-cost blockchain, so blockchain costs remain small, but they can also have a major impact on the profitability of a test carried out on another blockchain.
Medium-frequency arbitration - Once a day ⏲️
There's nothing special here, slippage and blockchain costs are relatively low, and profitability is relatively stable and smooth.
Low-frequency arbitration - Once a week ⏲️
Here we can see that not only has the low frequency used not reduced slippage costs much, but profitability has also become disastrous.
After several tests, most configurations suggest that arbitraging every 1 to 3 days is the most likely to produce good results.
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