🏆 GoldArb - PAXG/XAUT Grid Arbitrage Strategy

A high-frequency market-neutral spread arbitrage trading strategy for PAXG/USDT and XAUT/USDT perpetual swaps on Bybit, built with the NautilusTrader algorithmic trading framework.

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📖 Table of Contents

• Overview
• Features
• Strategy Logic
• Architecture
• Installation
  • Docker Deployment (Recommended)
  • Local Development Setup
• Configuration
• Usage
• Monitoring
• Risk Management
• Performance
• Troubleshooting
• Contributing
• Disclaimer
• License

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🎯 Overview

GoldArb is an automated trading strategy that exploits price spreads between two highly correlated gold-backed tokens:

• PAXG (Pax Gold): ERC-20 token backed by physical gold
• XAUT (Tether Gold): ERC-20 token backed by physical gold

By trading perpetual swap contracts on Bybit, the strategy captures arbitrage opportunities while maintaining a market-neutral hedged position.

Key Characteristics

• Market Neutral: Long one asset, short the other - no directional exposure
• Grid-Based: Multiple price levels with predefined entry/exit points
• High Frequency: Real-time quote monitoring and rapid order execution
• Risk Controlled: Built-in position limits, notional caps, and extreme spread stops
• Maker Orders: Uses limit orders to earn maker rebates and minimize fees

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✨ Features

• ✅ Real-time market data streaming from Bybit WebSocket
• ✅ Automated quote tick subscription for accurate spread calculation
• ✅ Multi-level grid trading with configurable spread thresholds
• ✅ Position reconciliation on startup and periodic snapshots
• ✅ Comprehensive logging (JSON format, DEBUG/INFO levels)
• ✅ Docker containerization for easy deployment
• ✅ Testnet support for risk-free testing
• ✅ Emergency stop mechanisms for extreme market conditions
• ✅ Graceful shutdown with order cancellation and position management

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📊 Strategy Logic

Core Mechanism

1. Spread Calculation

   spread = (PAXG_price - XAUT_price) / XAUT_price
   

2. Grid Entry Logic

   • When spread > grid_level: Open hedged position
     • SELL PAXG (expensive asset)
     • BUY XAUT (cheap asset)
   • Each grid level represents a specific spread threshold (e.g., 0.10%, 0.20%, etc.)

3. Grid Exit Logic

   • When spread reverts below the grid level: Close position
   • Profit is locked in from spread convergence

4. Order Execution

   • All orders are limit orders (maker)
   • Orders placed with small offset from mid-price for better fill rates
   • 5-second timeout for unfilled orders (cancel and resubmit)

Example Trade Flow

1. Initial State:
   PAXG = $2,700.00
   XAUT = $2,695.00
   Spread = 0.185% (above 0.10% grid)

2. Entry:
   → SELL 0.023 PAXG @ $2,700.00
   → BUY  0.023 XAUT @ $2,695.00
   → Position opened at 0.10% grid level

3. Spread Converges:
   PAXG = $2,697.00
   XAUT = $2,696.00
   Spread = 0.037% (below 0.10% grid)

4. Exit:
   → BUY  0.023 PAXG @ $2,697.00 (close short)
   → SELL 0.023 XAUT @ $2,696.00 (close long)
   → Profit: ~$0.046 per unit (minus fees)

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🏗️ Architecture

Technology Stack

• Framework: NautilusTrader v1.221.0
• Exchange: Bybit (Unified Trading Account)
• Language: Python 3.12
• Containerization: Docker with multi-stage builds
• Logging: Structured JSON logging with rotation

Project Structure

GoldArb/
├── paxg_xaut_grid_strategy.py   # Core strategy implementation
├── config_live.py                # Live trading configuration
├── run_live.py                   # Main entry point
├── requirements.txt              # Python dependencies
├── Dockerfile                    # Docker image definition
├── .env.example                  # Environment template
├── .dockerignore                 # Docker ignore patterns
├── logs/                         # Trading logs (auto-created)
│   └── paxg_xaut_grid.json
├── data/                         # Historical data (optional)
└── README.md                     # This file

System Requirements

• CPU: 2+ cores (ARM64 or x86_64)
• RAM: 1GB minimum, 2GB recommended
• Storage: 5GB for Docker images and logs
• Network: Stable internet connection (low latency preferred)
• OS: Linux (Ubuntu 20.04+), macOS, or Windows with WSL2

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🚀 Installation

Docker Deployment (Recommended)

Docker provides the easiest and most reliable deployment method.

Prerequisites

• Docker 20.10+
• Docker Compose 1.29+
• Bybit API credentials

Quick Start

1. Clone the repository

   git clone https://github.com/Patrick-code-Bot/GoldArb.git
   cd GoldArb

2. Configure environment variables

   cp .env.example .env
   nano .env  # Edit with your API credentials

   Required variables:

   BYBIT_API_KEY=your_api_key_here
   BYBIT_API_SECRET=your_api_secret_here
   BYBIT_TESTNET=false  # Set to 'true' for testnet

3. Build and run with Docker Compose (if using orchestration)

   cd ../trading-deployment
   docker-compose up -d goldarb

   Or run standalone:

   docker build -t goldarb .
   docker run -d \
     --name goldarb \
     --env-file .env \
     -v $(pwd)/logs:/app/logs \
     --restart unless-stopped \
     goldarb

4. Monitor logs

   docker logs -f goldarb

Docker Features

• ✅ Multi-stage builds for optimized image size
• ✅ Non-root user for security
• ✅ Health checks for container monitoring
• ✅ Automatic restarts on failure
• ✅ Volume mounts for persistent logs

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Local Development Setup

For development or testing without Docker:

1. Install Python 3.10+

   python3 --version  # Should be 3.10 or higher

2. Clone and install dependencies

   git clone https://github.com/Patrick-code-Bot/GoldArb.git
   cd GoldArb
   pip install -r requirements.txt

3. Configure environment

   cp .env.example .env
   nano .env  # Add your API credentials

4. Run the strategy

   python run_live.py

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⚙️ Configuration

Strategy Parameters

Edit config_live.py to customize the trading parameters:

strategy_config = PaxgXautGridConfig(
    # Instruments (Bybit LINEAR perpetual swaps)
    paxg_instrument_id="PAXGUSDT-LINEAR.BYBIT",
    xaut_instrument_id="XAUTUSDT-LINEAR.BYBIT",

    # Grid levels (spread as decimal percentage)
    grid_levels=[
        0.0010,  # 0.10% spread
        0.0020,  # 0.20% spread
        0.0030,  # 0.30% spread
        0.0040,  # 0.40% spread
        0.0050,  # 0.50% spread
        0.0060,  # 0.60% spread
        0.0080,  # 0.80% spread
        0.0100,  # 1.00% spread
    ],

    # Risk management
    base_notional_per_level=100.0,   # USDT per grid level
    max_total_notional=1000.0,       # Maximum total exposure (USDT)
    target_leverage=10.0,            # Target leverage (for reference)

    # Trading parameters
    maker_offset_bps=2.0,            # 0.02% price offset for limit orders
    order_timeout_sec=5.0,           # Cancel and resubmit after 5s
    rebalance_threshold_bps=20.0,   # 0.20% imbalance triggers rebalance
    extreme_spread_stop=0.015,       # 1.5% spread triggers emergency stop

    # Features
    enable_high_levels=True,         # Allow upper grid levels
    auto_subscribe=True,             # Auto-subscribe to market data
    order_id_tag="001",              # Unique strategy identifier
)

Risk Profiles

🟢 Conservative (Beginners)

base_notional_per_level=50.0    # $50 per level
max_total_notional=500.0        # $500 max exposure
target_leverage=5.0             # 5x leverage

Recommended Capital: $1,000+ USDT

🟡 Moderate (Default)

base_notional_per_level=100.0   # $100 per level
max_total_notional=1000.0       # $1,000 max exposure
target_leverage=10.0            # 10x leverage

Recommended Capital: $2,000+ USDT

🔴 Aggressive (Experienced)

base_notional_per_level=500.0   # $500 per level
max_total_notional=5000.0       # $5,000 max exposure
target_leverage=15.0            # 15x leverage

Recommended Capital: $10,000+ USDT

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🎮 Usage

Starting the Strategy

Live Trading Mode

# Using Docker
docker start goldarb

# Using Python
python run_live.py

Expected output:

================================================================================
PAXG-XAUT Grid Strategy - Live Trading
================================================================================
✅ Running in LIVE mode
================================================================================

[1/5] Loading configuration...
[2/5] Building trading node...
[3/5] Registering Bybit adapters...
[4/5] Initializing trading node...
[5/5] Starting trading node...

================================================================================
🚀 Trading node started successfully!
================================================================================

Strategy: PAXG-XAUT Grid Arbitrage
Venue: Bybit (Live)
Instruments:
  - PAXGUSDT-LINEAR.BYBIT
  - XAUTUSDT-LINEAR.BYBIT

Press Ctrl+C to stop the trading node...
================================================================================

Testnet Mode

For risk-free testing:

1. Create testnet API keys at https://testnet.bybit.com
2. Update .env:

   BYBIT_TESTNET=true
   BYBIT_API_KEY=testnet_api_key
   BYBIT_API_SECRET=testnet_api_secret

3. Restart the strategy

Stopping the Strategy

Graceful Shutdown:

# Docker
docker stop goldarb

# Python (Press Ctrl+C in terminal)

The strategy will:

• Cancel all pending orders
• Log final positions
• Save state snapshots
• Shut down cleanly

Force Stop (not recommended):

docker kill goldarb

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📈 Monitoring

Real-Time Logs

Docker Logs

# Follow live logs
docker logs -f goldarb

# Last 100 lines
docker logs --tail 100 goldarb

# Search for errors
docker logs goldarb 2>&1 | grep ERROR

Log Files

Location: logs/paxg_xaut_grid.json

Format: Structured JSON with fields:

• timestamp: ISO 8601 timestamp
• trader_id: TRADER-001
• level: DEBUG, INFO, WARNING, ERROR
• component: Strategy, ExecEngine, DataClient, etc.
• message: Log message

Example:

{
  "timestamp": "2025-12-15T12:48:45.480095413Z",
  "trader_id": "TRADER-001",
  "level": "INFO",
  "component": "PaxgXautGridStrategy",
  "message": "OrderFilled(instrument_id=XAUTUSDT-LINEAR.BYBIT, ...)"
}

Key Metrics

Monitor these critical metrics:

Metric	Description	Alert Threshold
Spread	Current PAXG-XAUT price difference	> 1.5% (extreme)
Active Grids	Number of open grid positions	Approaching max
Total Notional	Current exposure vs max limit	> 90% of max
Order Fill Rate	% of orders filled	< 80%
Unrealized PnL	Open position P&L	Large negative
API Latency	Bybit API response time	> 500ms

Bybit Web Interface

Monitor positions and orders:

• Live: https://www.bybit.com/trade/usdt/PAXGUSDT
• Testnet: https://testnet.bybit.com/trade/usdt/PAXGUSDT

Check:

• Open positions
• Order history
• Account balance
• Funding rates
• Liquidation price

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🛡️ Risk Management

Built-in Safety Features

1. Position Limits

   • max_total_notional: Hard cap on total exposure
   • Prevents over-leveraging

2. Extreme Spread Stop

   • extreme_spread_stop = 0.015 (1.5%)
   • Pauses strategy if spread becomes abnormal
   • Prevents trading during market dislocation

3. Order Timeouts

   • order_timeout_sec = 5.0
   • Cancels stale orders
   • Ensures fresh pricing

4. Position Reconciliation

   • On startup: Reconciles local state with exchange
   • Periodic snapshots every 5 minutes
   • Prevents state drift

5. Maker-Only Orders

   • All orders are limit orders
   • Earns maker rebates
   • Avoids paying taker fees

Operational Best Practices

Before Going Live

• Test on testnet for 24+ hours
• Verify API keys have correct permissions
• Set Bybit account leverage (10x recommended)
• Fund account with sufficient margin
• Configure position size alerts on Bybit mobile app
• Document emergency procedures

Daily Operations

• Check positions and P&L (morning/evening)
• Review log files for warnings/errors
• Monitor account balance and margin
• Verify strategy is running (Docker health check)
• Check for NautilusTrader updates

Emergency Procedures

If something goes wrong:

1. Stop the Strategy

   docker stop goldarb

2. Assess Positions

   • Log into Bybit
   • Check open positions and orders
   • Review account P&L

3. Manual Intervention (if needed)

   • Use Bybit web interface to manually close positions
   • Cancel any stuck orders
   • Document what happened

4. Review Logs

   tail -1000 logs/paxg_xaut_grid.json | grep ERROR

5. Restart (only after resolving issues)

   docker start goldarb

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📊 Performance

Expected Returns

Note: Past performance does not guarantee future results.

• Target: 0.5-2% weekly return (annualized 26-104%)
• Sharpe Ratio: 2-4 (market neutral, low volatility)
• Max Drawdown: < 10% (with proper risk management)
• Win Rate: 75-85% (mean reversion strategy)

Fee Structure

Bybit perpetual swaps (as of Dec 2025):

• Maker Fee: -0.01% (rebate)
• Taker Fee: +0.06%
• Funding Rate: ±0.01% per 8 hours (variable)

Strategy uses maker orders only → earning rebates on every fill!

Example P&L

With default configuration (8 grid levels, $100 per level):

Grid Level: 0.10%
Entry Spread: 0.185%
Exit Spread: 0.037%
Profit per Grid: ~$0.046 per unit × 0.023 units = $1.06
Maker Rebate: -0.01% × $200 notional = $0.20
Net P&L: $1.26 per grid close

Daily Average: 5-10 grid closes
Daily P&L: $6.30 - $12.60
Monthly Estimate: $189 - $378 (19-38% ROI on $1000 capital)

Results vary based on market volatility and spread behavior.

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🔧 Troubleshooting

Common Issues

Issue: "Max total notional reached, skip new grid"

Cause: Strategy has reached maximum exposure limit.

Solution:

• This is expected behavior when positions are at max
• Wait for positions to close before new grids open
• Or increase max_total_notional in config (higher risk)

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Issue: No orders being placed

Symptoms: Strategy running but no OrderSubmitted logs.

Diagnosis:

# Check if quote data is flowing
docker logs goldarb 2>&1 | grep QuoteTick

# Check spread warnings
docker logs goldarb 2>&1 | grep spread

Solutions:

1. Verify instruments are correct: PAXGUSDT-LINEAR.BYBIT
2. Check quote tick subscription is active
3. Ensure spread is crossing grid levels
4. Review extreme_spread_stop threshold

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Issue: Orders rejected by exchange

Symptoms: OrderRejected events in logs.

Common Causes:

• Insufficient margin/balance
• Incorrect leverage settings
• Position limits exceeded
• Price too far from market (stale)

Solutions:

1. Check Bybit account balance
2. Verify leverage is set to 10x on Bybit
3. Review maker_offset_bps in config
4. Check API rate limits

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Issue: Container keeps restarting

Diagnosis:

docker ps -a | grep goldarb
docker logs goldarb

Solutions:

1. Check .env file has valid API credentials
2. Verify network connectivity to Bybit
3. Review startup logs for errors
4. Check Docker resource limits (CPU/RAM)

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Issue: "Instruments not found in cache"

Cause: Instrument IDs don't match Bybit's format.

Solution:

• Correct format: PAXGUSDT-LINEAR.BYBIT (not -PERP)
• Update config_live.py if needed
• Rebuild Docker image: docker-compose build goldarb

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Getting Help

Resources

• NautilusTrader Docs: https://nautilustrader.io/docs
• NautilusTrader Discord: Join Community
• Bybit API Docs: https://bybit-exchange.github.io/docs
• Bybit Support: https://www.bybit.com/en-US/help-center

Reporting Issues

When reporting issues, include:

1. Docker logs (docker logs goldarb --tail 200)
2. Configuration file (redact API keys)
3. Error messages
4. Steps to reproduce
5. Environment info (OS, Docker version)

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🤝 Contributing

Contributions are welcome! Here's how you can help:

Development Setup

1. Fork the repository
2. Create a feature branch
3. Make your changes
4. Test thoroughly (on testnet)
5. Submit a pull request

Code Style

• Follow PEP 8
• Use type hints
• Add docstrings for functions
• Keep lines under 100 characters
• Run black formatter

Testing

Before submitting:

# Run on testnet
BYBIT_TESTNET=true python run_live.py

# Check logs for errors
tail -f logs/paxg_xaut_grid.json

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⚠️ Disclaimer

IMPORTANT RISK DISCLOSURE

• Trading involves substantial risk of loss
• This strategy is for educational purposes only
• Past performance does not guarantee future results
• The authors are not responsible for any financial losses
• This is not financial advice

Risks

1. Market Risk: Spread may widen unexpectedly
2. Liquidity Risk: Positions may be difficult to exit
3. Technical Risk: Software bugs, API failures
4. Execution Risk: Slippage, partial fills
5. Funding Risk: Negative funding rates on perpetual swaps
6. Correlation Risk: PAXG and XAUT correlation may break down

Recommendations

• ✅ Only trade with capital you can afford to lose
• ✅ Understand the strategy before deploying
• ✅ Start with small position sizes
• ✅ Monitor actively, especially initially
• ✅ Have a plan for extreme scenarios

Use at your own risk.

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📄 License

This project is licensed under the GNU Lesser General Public License v3.0 (LGPL-3.0).

See the LICENSE file for full license text.

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📞 Contact

• GitHub: @Patrick-code-Bot
• Repository: GoldArb
• Issues: Report a bug

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🙏 Acknowledgments

Built with:

• NautilusTrader - High-performance algorithmic trading platform
• Bybit - Cryptocurrency derivatives exchange

Special thanks to the NautilusTrader community for their excellent framework and support.

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⭐ If this project helps you, consider giving it a star! ⭐

Made with ❤️ for the algorithmic trading community