2023 is seeing several free and paid crypto arbitrage tools starting to come online. Almost everyone seduces cryptocurrency traders with promises of guaranteed profits when buying and selling digital assets. The only question is, how does cryptocurrency arbitrage trading work?
Simple Arbitrage, as the name implies, is the easiest form of сryptocurrency arbitrage and one of the most common. Cryptocurrency arbitrage is a trading process that takes advantage of the price differences on the same or on different exchanges. You buy a particular cryptocurrency, such as Bitcoin, on one exchange at a low price, and you sell the same cryptocurrency for a higher price on a different exchange. There are many reasons why you might want to start crypto arbitrage, including:
- Quick profits: If everything goes according to plan, it’s a plausible way to increase your capital. At the same time, it’s all about speed so that you might make money faster than with regular trades.
- Cryptocurrency markets are still young and volatile. Hence, most exchanges don’t share information and work on their own. Most cryptocurrencies experience many quick rises and sharp drops, which lead to price disparities and profitable arbitrage opportunities.
- There is less competition compared with traditional markets. Not every arbitrage trader is willing to give crypto a chance, which makes crypto space less competitive.
- Cryptocurrency price differences tend to range from 1% to 3% and sometimes reach up to 3–5% (in extreme cases).
- When comparing small exchanges and large exchanges, most arbitrage opportunities can be found because the difference in activity means that the price of small exchanges will not change from second to second. For example, when comparing Binance, Kucoin, and Gemini to regional exchanges like Mexc, CoinWema, Luno, etc.
We will use Binance.com and Coinwema, for example:
Step 1 — We buy 1 Eth at a price of 1,872 USDT on the Binance
Step 2 — Transfer Eth to CoinWema
Step 3 — Sell 1 Eth at a price (market order) of 1,932 USDT on CoinWema; the profit is $60. After all these steps, you can transfer the USDT to the Binance exchange or any exchange platform and repeat it again.
Note: This is also applicable in BTC, Atom, and every other cryptocurrency listed on both exchanges, and it’s also doable in other exchanges as long as the fees are minimal.
Finally, the risks associated with cryptocurrency arbitrage trading include slippage, price movement, and transfer fees.
Disclaimer: Crypto assets are unregulated & highly speculative in some EU countries. No consumer protection. Capital at risk.
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This is not financial advice. Investing and trading crypto assets is high risk and unsuitable for every consumer. The value of crypto assets may go down or up. As many crypto products and markets are unregulated, you may not be protected by government compensation and/or regulatory protection schemes. You should be prepared to lose money if something goes wrong.
Yinksmedia does not recommend that any cryptocurrency should be bought, sold, or held by you. We advise readers to do their own research before trading any cryptocurrencies and invest wisely. Yinksmedia is not liable for investment gains or losses.