Arbitration and assets on which it can be applied

Most stock exchange strategies are based on fundamental or technical analysis , but there are also those that do not involve the use of these market research methods.

One such strategy is arbitrage - a trading strategy that is based on using the difference in prices of the same asset in different financial markets.

This trading option allows traders to profit from arbitrage opportunities that arise as a result of temporary or structural imbalances in the market.

Essentially, arbitrage trading is a form of profiting from the difference, when you see that the price of product A is lower in that market, you buy it and sell it (product A) in another market at a higher price.

This method is very often used in trading Bitcoin and other cryptocurrencies; due to the existing difference in price, you can buy an asset on one exchange at a lower price, and then sell it on another at a more favorable rate.

The same approach can be applied to regular currencies, when you buy currency in one online exchange office cheaper, and sell it in another for more.

In other words, arbitrage can be called ordinary speculation, only speculators here prefer to trade not in clothes or products, but in assets such as currencies, cryptocurrencies or precious metals.

On the Internet you can often find a description of exchange arbitrage, when an investor buys shares on one exchange and then sells them on another. But, in my opinion, such a deal will most likely not pay off due to high overhead costs.

Also, you will not be able to use arbitrage in the metatrade trading platform since in most cases transactions here are concluded using contracts for difference CFDs .

Therefore, it remains to use only options that involve the actual purchase of an asset followed by a real sale.

If we talk about earnings on arbitrage, then with a successful combination of circumstances, this strategy can bring from 1 to 5%, because when calculating profits, you also need to take into account overhead costs, the same commission for transfers or the cost of delivery of goods.

Assets that can be used for arbitrage

There are not many assets that can be successfully used for arbitrage, and each has its own strategy:

Cryptocurrencies – when arbitraging on cryptocurrencies, you first create accounts on several exchanges, and then monitor the price of the selected asset.

When it is discovered that a cryptocurrency is cheaper on one of the exchange platforms than it is bought on another, a purchase is made, transferred to another exchange and sold.

A description of cryptocurrency arbitrage with all the details can be found in the article - https://time-forex.com/kriptovaluty/arbitrag-fx

Currencies – when choosing this option, you buy currency cheaper and sell it more expensive at another bank or exchange office.

Today there is no need to run from bank to bank checking exchange rates; everything can be done online. True, I would advise using not only banks, but also online exchange offices for arbitrage, this will allow you to quickly find a favorable rate.

You can also use double exchange; there are often situations where you can win if you first exchange one currency for another, and then for a third. 

Gold - at one time I discovered that the selling price of gold bars in Ukraine is 10% lower than the price of buying them in Poland. Now the situation has changed and gold in Poland is cheaper than in Ukraine.

Perhaps similar price differences exist between other countries.

True, with gold arbitrage it will no longer be possible to carry out the entire operation online; you will have to make a real purchase and delivery of the precious metal.

Is arbitrage risky?

It would seem that there is a risk here, bought cheaper and sold more expensive, the operation itself rarely takes more than a few minutes, but still, this strategy also has its risks.

Exchange rate risks – even in a few minutes an unfavorable price change can occur, especially if you are dealing with cryptocurrencies. As a result, instead of earning money, you will receive losses.

Liquidity risk the liquidity of a particular asset drops sharply Although the purchase price is indicated on the bank websites.

Transaction risk – in these turbulent times, payment systems and banks like to block transfers and freeze accounts.

Once your transactions appear to be suspicious and related to money laundering or terrorist financing.

In conclusion, we can summarize - arbitrage is a rather interesting strategy for making money, but its implementation requires large sums of money and, like any game on the courses, there is a high probability of losses.