The crypto arbitrage guide of 2021

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Cryptocurrency arbitrage is a strategy in which investors buy cryptocurrency on one exchange and then quickly sell on another exchange at a higher price.

Cryptocurrencies are similar to Bitcoin trading on hundreds of different exchanges, and sometimes, the price of a coin or token can vary on one exchange compared to another. This is where the old Wall Street strategy of "arbitrage" comes into play. "Arb hold" means to take advantage of the fact that goods are sold at a lower price in one place and at a higher price in another market.

With crypto arbitrage therefore, investors take advantage of the fact that digital currency sells at a lower price in one exchange by buying it and selling it almost immediately at a higher price in another exchange.

What types of arbitrage are available?

You can find many ways to perform to crypto arbitrage and I will cover the most widely used ones.

Direct arbitrage

This arbitrage is the most common. It allows us to buy crypto assets in one exchange and transfer them to another exchange while selling it at a higher price.

Problems such as costs, transfer and distribution times, make this type of arbitrage irrelevant. Basically, by the time we transfer crypto to another exchange, chances are that the price has already changed.

The great part of this arbitrage strategy is that it is easy to do.

Triangular arbitrage

This strategy uses two exchanges exploiting the difference between prices. Most exchanges have different markets with different cryptocurrencies pairs, we can take advantage of the many opportunities for triangular arbitrage.

For example, we can sell BTC on ETH, ETH on LTC and LTC on BTC. If the difference were significant, we would make a profit.

To make this example clearer, let us examine step-by-step instructions.

First, we will start with one asset, here BTC. This property will be the starting point for completing our arbitrage loop.

Second, we will trade this first asset (BTC) for the second time, here is ETH. Make sure the second item is connected to the first and next.

Thirdly, we will be trading our second (ETH) third, this is LTC. Make sure the third property is connected to the second and first.

And finally, what we need is to convert this third asset (LTC) back to the first one (BTC).

Why Crypto Arbitrage might be profitable?

There are many reasons why you want to crypto arbitrage, including:

Immediate profit.

If everything goes according to plan, it is a sensible way to increase your income. At the same time, it is about speed to make money faster than normal trading.

Lots of opportunities.

More than 200 exchanges where you can buy and sell cryptocurrensets, which means there are greater chance for arbitrage profits.

Cryptocurrency markets are still young and volatile. Therefore, most exchanges do not share information and operate on their own. Many cryptocurrensets experience a lot of rapid ups and downsizing, leading to price fluctuations and arbitrage profit opportunities.

There is less competition compared to traditional markets. Not all arbitrage vendors are willing to give crypto a chance, making the crypto space less competitive.

Cryptocurrency price variations typically range from 3% to 5%, and sometimes up to 30-50% (in extreme cases).

Needless to say, crypto arbitrage works best when trading with high amounts. Low amounts can give you a little reward that may not be worth your time. Indeed, cryptocurrency arbitrage can be a very rewarding career, but only if you do your research, estimation, and calculations.

What are the risks of crypto arbitrage?

Crypto arbitrage methods carry some risk and I will share with you the most notable:

High fees

Many brokers are aware of exchanging withdrawals but some exchange until they even charge a deposit. And these funds can easily accumulate and go up to $ 20 per exchange.

Time

Most crypto arbitrage opportunities do not last long because markets are volatile. If the market changes while you are in the crypto arbitrage system, usually, you will lose.

Volume

If you are not careful enough, you may try to sell the delisted coins out of volume. This will get you stuck and you will lose most of your startup money.

Transaction problems

Trading can get bugged and is where it is fun to overload, withdrawal issues, crashes, wallet issues and more. This can damage your arbitrage process based on speed and efficiency.

Conclusion

If you are a complete beginner, you will find it very hard to do the arbitrage. An expert can earn anywhere around 1k to 2k dollars per day by doing 3 to 4 arbitrages.

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