Cryptocurrency Arbitrage in a few simple steps!
What is Cryptocurrency Arbitrage?
We all try to make a little bit of extra money and buy something fancy for ourselves or the ones we love.
Cryptocurrencies bring along a number of opportunities including long-term investment, short -term investment, staking, pooling and many more. The number of opportunities in the crypto world are limitless and more opportunities are born every day.
Cryptocurrency has never been and will never be a dull topic. New coins, new technologies are launched everyday which keeps crypto enthusiasts eager to seize these opportunities.
Today we are going to speak about a less discussed topic and opportunity that exists around us – Cryptocurrency arbitrage.
Don’t let the word arbitrage scare you as the concept is super easy. Arbitrage is the act of buying an asset at one price from one market and re-sell it immediately on another market making profit from the price difference.
Arbitrage opportunities exist on the market for different asset classes – including stocks, commodity, currency, bonds and last but not least cryptocurrency.
Arbitrage opportunities arise due to deficiencies in the financial markets such as delays in updating prices resulting in prime opportunities for an arbitrageur. The same applies for Cryptocurrency arbitrage, opportunities arise due to deficiencies from cryptocurrency exchanges.
Discrepancies in cryptocurrency prices across different exchanges is present more often due to the fact that cryptocurrencies are decentralized, so there is no standard or global cryptocurrency price at any given period of time.
Cryptocurrency (apart from tether) aren’t pegged to the USD or to any other fiat currency, nor is it linked to a particular country or to an exchange.
Supply and demand on different exchanges will vary depending upon the time and the market, resulting in the prices of cryptocurrency fluctuate across exchanges all time especially in times where there is high market volatility.
Just to give a clearer picture, each exchange offers its own rate for a specific cryptocurrency. The price is in most cases the same across all exchanges, but sometimes there is a deviation of about 5-10% with a maximum deviation of 20%.
Can you make money from Cryptocurrency Arbitrage?
As mentioned earlier, cryptocurrency is one of the best assets for arbitrage, it is the most volatile which make it an attractive asset for arbitrageurs to make money.
As with everything, this requires some time and skill, however with the right skills and tools it is possible to make good money. Everything comes with a risk, so if not done properly you might end up losing money instead of making it.
The main risk of cryptocurrency arbitrage is due to the fact that these opportunities exist for short time frames – mostly when there is a lot of buying or selling in the market.
This leaves the arbitrageur a short period of time to take action and seize the opportunity. Speed is a necessary attribute, in fact the best way to execute arbitrage is to have programmed bots which identify these opportunities on the market which will buy and sell an asset on your behalf.
Another important factor to take into consideration before executing arbitrage is to understand exactly the fees you’ll incur when using different exchanges, as these will be deducted from any profits generated.
How can you find cryptocurrency arbitrage opportunities?
If you are using trading bots, they will execute trades automatically on your behalf. The headache is to set them up and program them. Unless you are a developer or have some advanced knowledge in programming languages such as Python, developing an algorithm to identify these temporary asymmetries, requires time and dedication as you must learn how to code your trading strategy.
An easier option for those who want to use trading bots but do not have the necessary skills to code, is to use platforms such as Bitsgap and Cryptohopper which offer already designed trading bots for a monthly fee.
Although no coding skills of coding is required, it is still a little technical to set-up as you have to integrate with the exchange through an API.
The easiest way of executing arbitrage without incurring additional fees is by doing it manually. As discrepancies are huge in the cryptocurrency market, this usually provide the arbitrageur enough time to make profits.
To start with, manual arbitrage should only be tried on the most liquid cryptocurrency like Bitcoin, Ethereum and XRP and exchanges with large, traded volumes – the most liquid crypto and exchanges can be found on Coinmarket cap with the respective the traded volume in the last 24 hours.
This way you’ll have assurance that you’ll be able to buy and sell your asset in a few seconds as there will be liquidity, you cannot waste time waiting for your order to be filled.
Are there any simple tools I can use for Manual crypto arbitrage?
Yes, there are, and they are very simple to use.
Cryptoscanner is a search engine integrated with the topmost 15 liquid exchanges which will help you find any price discrepancy between these exchanges in four simple steps.
- Choose ‘BUY’ or ‘SELL’.
- Choose the cryptocurrency you want to use – as flagged use most liquid.
- Choose the FIAT currency you’ll be using.
- Set the Amount. In case you are buying crypto, you have to put the amount of FIAT you want to use, otherwise (sell) you put the number of cryptocurrencies you are selling.
Once you click Search the Cryptoscanner will return the real-time prices across all the cryptocurrency exchanges with the exchange that gives you most for the money you are willing to spend on top of the list. The fees by the exchanges are also retrieved.
You have filters available to choose from as follows:
- Your preferred payment method.
- Your Location – Cryptocurrency exchanges support different countries.
- Instant Verification – Depending on how long the cryptocurrency exchange takes to verify your account.
As an arbitrageur, your job is to buy cryptocurrency at the cheapest price possible – the cryptocurrency exchange that is at the top of the list and then resell it on the exchange which will give you the highest price – the cryptocurrency exchange that is the last of the list.
You can also choose to use the ‘SELL’ functionality of the search engine when it’s time to sell to find which exchange will give you most.
Arbitrage Opportunity on Cryptoscanner
A great example of an arbitrage opportunity was with Polkadot (DOT). On Bithumb Global, DOT was being sold for $16.60 dollars whilst on Bitfinex it was sold for $20.64.
With the same amount of FIAT money ($500), at the time you would get 30 coins on Bithumb Global and 24 coins on other exchanges. That means that you’ll get over 20% discount when buying Polkadot from Bithumb.
An arbitrageur would buy from Bithumb Global and resell it quickly on the other exchanges making a quick significant return on capital.
Although most of the cryptocurrency exchanges now offer an instant verification process and will allow you to buy cryptocurrency immediately after providing all the details, it is better to open the accounts upfront. This will make your process smoother – Don’t forget manual arbitrage is all about speed.
We suggest that you familiarize yourself with Cryptoscanner, check out the exchanges that are supported by the search engine and have your accounts set-up already.
Don’t forget to consider the fees applicable.
In times of high volatility in the market, return to Cryptoscanner, do a quick search. If a significant discrepancy in prices is identified on the same coin, it means an arbitrage opportunity is present.
Conclusion on Arbitrage Opportunities
Artbitrage opportunities in cryptocurrency are very common. How you intend to do it depends on your skills and time you have at your disposal.
Bots are definitely the most efficient way of doing it, however it is a more complicated approach especially to the layman.
Another option to execute cryptocurrency arbitrage without many complications can be by using a cryptocurrency search engine such as Cryptoscanner. In a few steps the search engine will pinpoint which exchange and cryptocurrency is available at a discount.
Are you going to give it a shot?