Crypto Arbitrage Trading In 2020: From Scratch to Hatch
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Crypto Arbitrage Trading In 2020: From Scratch to Hatch

April 3, 2020      Tarulika Jain

Let us reconsider the golden month of November 2017 when Bitcoin almost touched $10,000 price. But! Not all the exchanges signalled the same prices. CEX listed BTC at $10,026 while Kraken at $9,748. If I had bought the BTC on Kraken from my fiat and then sell my BTC on CEX, I would have made a profit of almost 3% by gaining from the price difference of crypto exchanges. This is called crypto arbitrage trading!!

 

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What Is Crypto Arbitrage Trading?

Arbitrage, which commonly works in the traditional financial markets, is gaining popularity in crypto markets since last year. The cryptocurrency is highly volatile, thereby associated with huge profits and losses, so crypto arbitrage trading could be proved as an opportunity to earn even from your small investments.

 

Crypto arbitrage trading is simply the simultaneous buying and selling of the crypto coins in two markets and to gain from the difference in prices. (It is less risky!!)

 

Why The Discrepancies In Price Occur?

Many of you might be thinking that why do the variations in price occur? So, there could be different reasons which are responsible for the high price at one exchange while low at others. Different trading volumes, whales of the crypto world, dissemination of information (whether right or wrong) between buyers and sellers, investment announcements and also new partnerships can change the prices of BTC on different exchanges. Though profits are less due to the associated transaction fees in arbitrage trading, undoubtedly less risky!

 

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How To Explore Crypto Arbitrage Opportunities?

Till now you are considering the whole idea of crypto arbitrage appealing. But have you wondered how you can calculate or explore the cryptocurrency arbitrage opportunities? Indeed, plenty of circumstances or situations exist in the developing crypto markets, from which calculated profits can be made. Many crypto investors continuously calculate the risks and analyze the charts to capitalize their investments from volatile cryptocurrency and imbalances in crypto exchanges.

 

Technically, the crypto arbitrage trading opportunity is calculated after analyzing the overlap between the highest bid price and lowest ask price. As per the crypto arbitrage calculator, when one exchange shows a higher bid price than the ask price of another exchange, arbitrage opportunity is created. This can be calculated by studying the order books of the various exchanges by simulating actual buys and sells. Sounds difficult!! Don’t worry, technology is progressing day by day, and it has the solution for this twisted calculation problem. Crypto trading bots like Cryptohopper, Crypto trader, Gekko etc. can be one of the options which can automate the trading process. Platforms like Uniswap, Bancor etc. based on decentralized exchanges can automatically facilitate arbitrage via smart contracts. Many data exploration tools like KoinKnight are available in web space which can calculate the arbitrage opportunities for you.

Thus, if you want to take advantage, you can go for the high tech solution, but then also you have to keep few strategies in your mind to have the basic idea of what all can be planned to gain maximum profits.

Let Us Take Benefits From Strategies Of Crypto Arbitrage 

Whenever you don’t strategize before investing your coins, you might fall hard. Though the crypto market is highly volatile and the opportunity can vanish away if you don’t keep an analytical eye on the markets. So, before moving forward to know how to arbitrage cryptocurrency, you must prepare yourself that arbitrage is not riskless profit but the profit with minimal risks.

 

  • The first and most straightforward strategy to take the benefit is to gain from the difference in the price of the same asset but different exchanges. It means you must buy several crypto coins from the exchange where it costs lower than the exchanges, on which you are planning to sell them. You need to swap the currencies (crypto-crypto trading) either on centralized or decentralized exchanges (Linear Arbitrage).
  • The second one could be a little difficult but try this once you have tried your hand with the first strategy. Now, you have to study the exchange rates of three different exchanges rather than two and find the best combination to generate the profits from crypto arbitrage trading. It is slightly complicated but certainly has better profit opportunities.
  • Thirdly, the statistical or convergence arbitrage which could only be tried after the detailed analysis of the markets or after the experts’ consultation. This strategy is based on the calculation of statistics and sophisticated mathematical modelling. Basically, in this method crypto coins are purchased from an exchange, when it is undervalued and at the same time overvalued on other exchanges. And you have to wait till the prices move towards each other and coincide at the point. This method could be riskier but can yield huge profits.

All of the strategies can be applied either to the exchanges of the same country and also even the cross border exchanges. But, the caution needs to be taken, and essential reading of the process must be understood carefully and patiently. These three basic strategies hopefully responded-how to arbitrage bitcoin! You just need to fund your exchange accounts, identify and quantify the opportunities and execute the strategy!

 

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Minor Issues With Arbitrage Trading

 

 

Occasionally we unintentionally ignore the transaction or withdrawal fees (which could reduce the profits!)and time delays (you might lose the chance to trade more) associated with crypto arbitrage trading. We cannot neglect these two factors as they might decrease the profits associated, and our strategy to earn might reduce to nothing! Sometimes, stringent regulations related to verification and anti-money laundering during cross border arbitrage can frustrate you and might halt your strategy of crypto arbitrage trading. The newbies are many times lured by the exceptional offers of the fake or fraudulent exchanges (lack of research of crypto exchange) during the arbitrage trading. They would lose even the money they gained previously from trades and planning to double it!

Though the issues seem to be trivial, they cannot be ignored during arbitrage practices.

Final Thoughts: Is It A Yes Or No To Arbitrage?

As the bitcoin market is based on the latest blockchain technology, then the methods associated with harvest profits cannot ignore the sophisticated techniques. In modern times, arbitrage has become hassle-free and almost riskless with new service providers and the latest bots who are automating the complete trading procedure.

On the contrary, opportunities associated with menial profits can sometimes be time taking and associated with withdrawal fees which can compel you to drop the plan to continue with crypto arbitrage trading. So!! Just calculate both the aspects of the trading and use the method of arbitrage judiciously for gaining profits.

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Tarulika Jain
Tarulika Jain

Tarulika is an engineering graduate and an eloquent crypto blogger. Being a digital economy supporter, she keeps herself updated with the latest innovation in the crypto industry, Blockchain Technology, Internet of Things and other technologies. Currently, she curates the simple and interesting content for Crypto guides for beginners. If you want to learn more about the cryptocurrencies, latest trends of blockchain-powered AI applications, you are free to follow her on LinkedIn and Twitter.