Blog

What is Crypto Arbitrage? – A comprehensive guide

Published

on

How many of you have heard of cryptocurrency arbitrage before and wonder what it is all about? Well, in this article, you are going to get in-depth knowledge on the following:

  • Cryptocurrency arbitrage opportunities scanner
  • Cryptocurrency arbitrage PDF
  • Cryptocurrency arbitrage monitor
  • Cryptocurrency arbitrage live
  • Arbitrage in cryptocurrency markets
  • Arbitrage in cryptocurrency
  • Crypto arbitrage defi
  • Cryptocurrency arbitrage calculator
  • Cryptocurrency arbitrage bot
  • Cryptocurrency arbitrage algorithm
  • Cryptocurrency arbitrage software/app
  • Cryptocurrency arbitrage website
  • Crypto arbitrage hedge fund
  • Crypto arbitrage exchanges
  • Crypto arbitrage discord

Cryptocurrency arbitrage is a technique that many people are using in this young crypto world to make quite a bit of money and potentially a less riskier way than the traditional ways of trading like swing trading or day trading.

If you are curious about cryptocurrency arbitrage and haven’t looked it up yourself then have no fear because I created an overview of this topic for you all. Keep reading!

What is Arbitrage?

Arbitrage simply means finding an asset that is different in prices in different markets or exchanges. You can do this technique with stocks, bonds, FX, e.t.c.

Basically, the idea is that you buy in one market and then sell it in another market where it’s a different price to profit off the difference. This is considered a risk-free trade or pretty close to it if there ever is one, that’s kind of hard to find in the traditional markets because it is an old technique and many people are already taking advantage of it or has systems in place automated.

Cryptocurrency arbitrage monitor

Automated systems do most of the arbitrage these days to keep prices stable across markets, that is why retail traders like you and I can’t really do this anymore, however, what about in the crypto world, because this is quite a different market quite different from the traditional ones.

There are over 200 exchanges with a large price distribution just going to look at coinmarketcap.com, click on the coin, and click on ‘market’ you can see all the price differences. They are due to imbalances and supply & demand and also price discovery is done separately for each exchange.

Larger exchanges with liquidity driving the price and then the small ones following them and it’s not immediately, sometimes the big ones change and then the small ones slow to catch on, that is where the arbitrage opportunities exist.

for more explanation on crypto arbitrage refer to the video below:

Types of Arbitrage

  • Simple arbitrage
  • Bank credit/debit card Arbitrage
  • Fiat trangular arbitrage
  • Crypto triangular arbitrage
  • Convergence arbitrage
  • Cash-and-carry arbitrage

We are going to look at each one of them in case you are curious.

Simple arbitrage

Simple arbitrage as the name suggests is quite simple; you buy a coin on one exchange and sell it on another exchange at the same time or close to the same time.

You can earn the spread which is the difference between the prices instantly in this case, in some situations, you can between exchanges but takes some time. Another technique to do is to have fiat and crypto balances on both exchanges so you can effectively buy and sell on one exchange to another one at the same time.

Here is an example:

LTC (litecoin) is $60 on Binance and $62 on Coinbase, you can buy 50 LTC on binance and sell on coinbase and earn an instant $100 profit.

Bank credit/debit card arbitrage

Bank ATM card arbitrage is very profitable as it involves the buying of cryptocurrency using bank ATM cards and selling at Peer-2-peer exchanges for instant profit.

Here is an example:

Let’s say you buy 5 LTC for $51 x 5 = $255. You are charged 1,500 KWN per dollar i.e 1500 x 255 = 382,500 KWN.

When you sell at a Peer-2peer exchange at the rate of 1,530 KWN per dollar you make a profit of 7,650 KWN. That’s highly profitable.

Always check the Cryptocurrency category to see working Bank ATM cards whenever we make a new post.

Fiat triangular arbitrage

This is when you three assets or two asset pairs involved with one shared asset between pairs example is bitcoin USD (BTC/USD) and bitcoin Korean won (BTC/KRW), now bitcoin is a shared asset but there there are three total that we are dealing with here.

Here is an example:

Buy 1 BTC for $3,800 on Coinbase, send it to a Korean exchange and sell it for $4,200 worth of KRW and then you can convert your Korean won to USD for $400 profit.

This opportunity is often there for exchanges serving local or regional markets.

Crypto triangular arbitrage

You can do this triangular type of arbitrage with crypto even within one exchange you can apply this technique, so how does this work? Well, you are taking advantage of mispricing between three pairs of coins.

Here is an example:

ETH/BTC, ETH/LTC, LTC/BTC, they kind of form a triangular per se, so if you recall or look at coinmarketcap.com; the ratios between the coins are denoted in USD value as well that’s why you can take advantage of arbitrage e.g let’s say Ethereum converted to Bitcoin and Litecoin converted to Bitcoin, those are two separate markets so they have different supply and demand.

That’s why there are price differences and that’s how you can take advantage by going through the pairs to get that price differential in terms of USD value and you can make more Bitcoin or whatever coin you are trying to make in that scenario.

There are also bots available to do this.

Convergence arbitrage

This is based on the idea that where there’s market inefficiencies eventually will converge due to other people for example taking advantage of arbitrage opportunities, so what you can do is buy this coin on exchanges where it is undervalued, and then you short sell on exchanges where it is overvalued.

To do this you have to find exchanges that allow shorting of that particular coin.

Here is an example:

Buy LTC on Gemini for $51, short on Kraken for $56, when the prices converge you would have made $5.

Of course, shorting is a kind of complicated enough for newbies, please do a lot of research and testing before you end up trying this.

Cash-and-carry arbitrage

This can be utilized because of the futurist markets. Basically, you go long in the spot market or the market that we are all familiar with, you go short in the future market, and then you carry the asset until the futures contract expires and then you set away with your long position by doing so you can pocket the difference when you deliver the asset.

Here is an example:

Let’s say the futures price on CME for BTC is $4,300, right now on Binance it is $4,000. You can buy on Binance and then short it on CME. When your futures contract expires you can deliver the one bitcoin and get paid $4,300 for it.

Cryptocurrency arbitrage bots can help

When it comes to algorithmic trading, computers can honestly do this better than us. Thye can execute complex roles quickly and accurately, they can save you time and hassle so you don’t have to sit in front of your computer all day looking for opportunities and manually executing them.

Also, they aren’t prone to emotional effects if they are coded properly and has safeguards in place then it will follow that to a T and won’t be like you that panic sells or panic buys for example.

You can code your own bot if you are a programmer or pay for them if you are not. However, the more people that use this the less effective they become that’s true for every technique whether bot or regular techniques and they used to work super well during the last bull run where there’s a lot of efficiency and volatility but now there’s not much.

Cryptocurrency arbitrage opportunities

Like I said earlier, when it gets listed on exchanges it is a big opportunity for e.g study Binance every time a coin gets listed on Binance it pumps up majorly which is an opportunity for arbitrage between Binance and other exchanges that already have the coins listed.

Different countries is a big deal for price differences access is silo’d, for example, Korea had really big price differentials but most of the time you need to have a Korean Identity card or a Korean bank account in order to take advantage of or you can’t signup for Korean exchange.

Cryptocurrency arbitrage drawbacks & risks

Of course, there are many drawbacks and risks with everything you do in the crypto world or just financially in general. Here are some examples:

  • Exchange risk
  • Withdrawal limits
  • KYC restrictions
  • Hacked funds
  • Execution risk due to volatility (slippage)
  • Low liquidity – When you can’t execute trades quickly at desired price.
  • Transfer risks (network congestion or wallet maintenance).
  • Fees – maker/taker, fiat deposit, withdrawal, credit card payment.
  • Taxes

General tips to have in mind when doing cryptocurrency arbitrage

  • Carefully set your trades (quick execution)
  • Minimize fees – choose exchanges/process carefully
  • Pay attention to crypto world opportunities
  • Transfer with faster coins e.g ETH instead of BTC
  • Have a detailed plan – what price % difference to target? how much capital to spend?
  • Use trusted exchanges (get a good feeling for them first)
  • Diversify (different exchanges/coins/strategies
  • Limit your exposure.

Cryptocurrency arbitrage PDF

I have provided one of the best cryptocurrency arbitrage PDF below, you can use the link below to download it.

Crypto arbitrage discord

If you are interested in joining crypto arbitrage discord groups, I have provided some below:

Conclusion

Thank you very much for reading, if you have any questions related to this article kindly comment below.

Share this article with those who need to read this!!!

Leave a Reply

Your email address will not be published.

Trending

Exit mobile version