Cryptocurrency arbitrage: how to make money on price differences
Arbitrage is a money-making strategy that involves buying an asset in one market and simultaneously selling it in another market at a higher price.
The arbitrage scheme can be more complex, when profit is generated through several transactions, in the process one currency is first exchanged for another, and then for a third.
As a result, the participant in the transaction makes a profit due to the difference in prices on different exchanges, and not due to changes in the exchange rate over time.
Cryptocurrency arbitrage is a type of arbitrage that involves buying a cryptocurrency on one exchange and simultaneously selling it on another exchange at a higher price.
Advantages:
- Possibility of obtaining high profits in a short time.
- Opportunity to earn money in various market conditions.
- Transactions are carried out without the use of cash
Flaws:
- High risk of losing funds due to price differences.
- Difficulty in tracking cryptocurrency prices on different exchanges.
- The need to have access to several exchanges.
- Commissions you have to pay when exchanging
Types of Cryptocurrency Arbitrage
There are several types of cryptocurrency arbitrage, which vary in complexity and risk level. Here are some of the most common types of cryptocurrency arbitrage:
Inter-exchange arbitrage is the most common type of cryptocurrency arbitrage. It consists of buying cryptocurrency on one exchange and simultaneously selling it on another exchange at a higher price.
Liquidity arbitrage is a type of arbitrage that involves buying a cryptocurrency on an exchange with low liquidity and simultaneously selling it on an exchange with high liquidity .
Spread arbitrage is a type of arbitrage that involves buying a cryptocurrency on an exchange with a high spread and simultaneously selling it on an exchange with a low spread.
How to get started with cryptocurrency arbitrage
To get started with cryptocurrency arbitrage, you need to follow these steps:
Open accounts on several exchanges. This will allow you to track the prices of cryptocurrencies on different exchanges and make trades on different exchanges.
Alternatively, you can open accounts with several cryptocurrency brokers that have the asset you need.
Install price tracking software. This software will help you track cryptocurrency prices in real time and find arbitrage opportunities.
Develop an arbitrage strategy. It is important to develop an arbitrage strategy that suits your risk level and investment goals.
Cryptocurrency arbitrage is an effective way to make money, but the profit from one transaction rarely exceeds 1%, usually tenths of a percent.
Therefore, in order to earn a significant amount on this scheme, you need a fairly large deposit or use leverage to increase the volume of transactions. Leverage sizes for cryptocurrencies - https://time-forex.com/kriptovaluty/razmer-plecho-cripto .
There are situations when you can make a profit using cryptocurrency exchange transactions for cash. In my practice, there was a case when the exchange rate for usdt to cash was 4.30 zlotys, at the same time you could buy dollars for 4.15.
After again exchanging dollars for usdt at a rate of 1:1, the resulting profit was about 3%. True, such situations happen quite rarely and are associated with risk, because you are working with cash.