A Beginner’s guide to crypto-arbitrage trading
Let’s start with the basics of crypto-arbitrage — what it is and how it works.
First, cryptocurrency arbitrage trading is not like other forms of investing in digital currencies, which leave you open to losses from cryptocurrency market volatility. Instead, it profits from temporary price inefficiencies on exchanges.
Simply put, cryptocurrency arbitrage involves taking advantage of the fact that over a short period of time, a coin may be available on different cryptocurrency exchanges at different prices at the same time.
To make a profit, you buy a coin on the exchange where the price is lowest, then instantly sell it on the exchange where the price is highest, and get the difference. The price disparity can last for a very short time, so you need to take advantage of the opportunity before the market corrects and the inefficiency is eliminated.
Price disparity can be caused by a number of reasons, such as different levels of activity and differences in supply and demand on different exchanges.
Is crypto-arbitrage risky?
While crypto-arbitrage is essentially very low risk compared to speculative investing in digital currencies, there are a number of factors you need to consider in order to effectively protect your capital.
First, you need to choose a cryptocurrency arbitrage app that doesn’t charge exorbitant withdrawal fees and allows for quick transactions, as price inefficiencies are often short-lived. You don’t want other traders to close the gap before you can make a profit, so it’s wise to keep coins on exchanges so you can react quickly to arbitrage opportunities.
What are the different types of arbitrage for cryptocurrencies?
There are several approaches to arbitrage investing in cryptocurrencies. We will start with crypto-arbitrage in its simplest form. As we have seen, it involves using a small difference in price between exchanges by buying a coin on one exchange and then selling it on another. Another approach is to buy and sell two currency pairs at the same time, taking advantage of the difference in the order book by making trades in both pairs at the same time.
Crypto arbitrage of volatility volume involves taking advantage of the fact that exchanges have different levels of trading activity, and an exchange with lower volume will have higher price volatility, which can be exploited. There is also margin arbitrage, where you buy a coin on one exchange and then place a short position on the exchange where you think the coin is offered below market value.
Finally, there is a somewhat more complicated strategy known as triangular arbitrage (also known as cross-currency arbitrage and three-point arbitrage)
HOW DOES TRIANGULAR ARBITRAGE WORK?
This rather complex approach involves buying and selling multiple basic pairs on the same exchange for the same digital asset.
This allows for arbitrage opportunities across different cryptocurrency markets, while avoiding the problems that arise when trying to monitor multiple exchanges at the same time.
The principle is to use three different pairs, such as LTC/BTC, LTC/ETH and ETH/BTC. We start by buying LTC/BTC, which is where your arbitrage triangle starts. It will then be exchanged for LTC/ETH, which connects to the previous pair and the next asset in the triangle loop. You then move on to the third currency, ETH/BTC, which connects to the first and second pairs.
This trade captures your profit, which is formed by the difference in the exchange rates of the three pairs. All you have to do now is convert the third currency back to your original asset.
The advantage of this type of crypto-arbitrage is that it allows you to avoid transaction time differences between exchanges. However, you must take care not to lose too much by paying a commission for each transaction step and earn more on the transaction than you paid to execute it.
What are the best tools for taking advantage of cryptocurrency arbitrage opportunities?
The best cryptocurrency arbitrage apps simplify and speed up your arbitrage efforts by being convenient and efficient. Many of them are also completely free. For example, sites like CoinGecko or CoinMarketCap provide up-to-date cryptocurrency market data so you can determine price fluctuations between different exchange listings and take advantage of opportunities on all types of altcoins. Of course, there are crypto-arbitrage calculators as well as portfolio trackers such as Blockfolio and CoinStats, which allow you to track cryptocurrency pairs on different exchanges and look for price differences.
However, the most important tool is the crypto-arbitrage algorithm. An automated, algorithmic trading platform is almost certainly the most reliable and fastest way to implement a crypto-arbitrage strategy.
What are the benefits of automated crypto-arbitrage?
A crypto-arbitrage algorithm is able to scan multiple exchanges simultaneously, tracking hundreds of cryptocurrencies at a time to identify inefficiencies and exploit them lightning fast before the market corrects and the price difference dissipates on its own.
When your crypto-arbitrage is automated, you can also make a huge number of trades at once, with speed and efficiency that no human can match.
The biggest advantages of automated crypto-arbitrage are that it requires no special financial knowledge, requires no time-consuming research into price differences or trading activity on exchanges with high and low trading volumes, and requires no hours spent in front of a monitor screen making trades.
Here at Intelfin Global, our automated crypto arbitrage system does all the work for you. You simply sign up, deposit funds, and the system takes care of all the work, taking advantage of evolving cryptocurrency arbitrage opportunities on your behalf as soon as they appear.
Is cryptocurrency arbitrage profitable?
Automated cryptocurrency arbitrage trading can be incredibly profitable.
Another advantage of cryptocurrency arbitrage is its predictability.
Unlike speculative trading, it is consistent and reliable, allowing you to plan and manage your finances effectively. Regardless of whether cryptocurrency markets rise or fall, you can continue to make steady profits, which makes crypto-arbitrage a great hedging opportunity.
Crypto-arbitrage is becoming increasingly popular not only among individual investors, but also among hedge funds, financial institutions and investment companies. It requires minimal effort and offers high returns, providing speed and profitability in cryptocurrencies with almost zero risk.
- Crypto-arbitrage is much more profitable compared to investing in real estate because there is no complicated bureaucracy, maintenance costs or constant management, and the returns are about 20 times higher.
- Unlike government bonds, you’ll get immediate returns with a multi-investment platform, and compared to stocks, you can expect up to 15% returns per month with hybrid bots, as opposed to an average annual return of just 10% in the stock market.
- Finally, consider that a savings account will only yield an average of 1% a year, whereas you can earn that in a day with Intelfin Global.