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December 22, 2020

What You Need to Know about Cryptocurrency Arbitrage

Cryptocurrency trading has been around for some years already and has managed to capture the attention of numerous traders. However, sometimes this activity may seem a bit complicated and even risky. Not only that, you have to be alert 24/7 and analyse price charts to assess cryptocurrency movements. 

For the time being, there are a lot of trading techniques that can ease your life and help you earn a greater profit margin, with crypto arbitrage being no exception. This technique can be considered as a nice option for making profits without putting much effort and it has proved to be an efficient method when quick price actions present a lot of opportunities.

What is cryptocurrency arbitrage about?

Cryptocurrency arbitrage offers to leverage prices to your own advantage by buying cryptocurrency at a lower price and selling it at a higher one with the transaction verification on a developed blockchain platform. This enables you to gain profit from the transaction and be at a considerable advantage. 

Given that cryptocurrencies are decentralized and volatile, and the market itself is undergoing constant development and improvement, arbitrage opportunities are becoming more and more frequent.  

Currently, there exist some arbitrage types, with simple and triangular arbitrage being the most popular.  

  • Simple arbitrage is about buying and selling one and the same crypto asset on different exchanges at short notice. This allows you to benefit from the inefficiencies in prices across various exchanges. Simple arbitrage does not need any extra trades apart from those that are essential to trade the two assets that are shared by the asset pair demonstrating the arbitrage opportunity. 
  • Triangular arbitrage can take place on a single exchange (or across multiple exchanges). In this way, the price edge between three different cryptocurrencies opens up an arbitrage opportunity. A number of exchanges have markets that present a bunch of quote currency options. This, consequently, provides a lot of triangular trading patterns that can be utilized so as to make the most of inefficiencies in an individual exchange pricing. 

What are the benefits of cryptocurrency arbitrage?

Cryptocurrency arbitrage trading can offer a number of real benefits that make it an extremely lucrative option for those who either wish to become crypto traders or are eager to continue this activity using advanced methods and techniques. The most prominent benefits cryptocurrency arbitrage offers are as follows:

An extensive range of opportunities

As of today, there are a lot of crypto exchanges on the market. This, consequently, provides a wide range of arbitrage opportunities. For the time being, there exist about 400 cryptocurrency exchanges globally.

Fast profit

It is possible to perform crypto arbitrage once a transaction is completed. It might take up to an hour or even less. This is considered to be relatively speedy in comparison with other traditional trading techniques where you both buy and trade cryptocurrencies to sell them later. 

The crypto market is still in its development stage

It will not come as a surprise that cryptocurrency has not been widely accepted yet, and the crypto market itself is still undergoing enhancement and development. Therefore, it is quite logical to assume that there are not many crypto traders on the market, and it means that there is less competition, which can result in potential price differentials. 

Cryptocurrency is still volatile

Launched in 2009, Bitcoin has been regarded as the most popular cryptocurrency among its counterparts. Given that the coin is decentralized, it is still one of the most volatile cryptocurrencies. This leads to considerable price differences between exchanges and gives an opportunity for arbitrage. 

What do you need to consider before you try arbitrage trading?

Monitor the market all the time

You have to stay alert almost 24/7 to spot arbitrage opportunities that may arise at any time. You should monitor recent news since you run more chances of spotting price differences when the market is volatile. 

Consider other cryptocurrencies apart from Bitcoin 

Bitcoin transactions are said to take up much time, whereas the arbitrage procedure needs to be carried out relatively quickly. That is why you can consider other altcoins, such as ETH, which is a nice alternative that offers quicker transaction completion. 

Use hedging strategies

By using various hedging strategies, you can protect yourself from any sudden market changes. Hedging secures you from potential risks and losses and acts as an insurance policy that is capable of protecting you from a number of damages. 

Plan your strategy in advance

Surely, there are a lot of aspects to consider before getting down to arbitrage trading. Draw a comprehensive strategic plan that will help you address such issues as ‘How much profit do you intend to make?’, ‘How much money will go into trade?’, etc. Once you are able to provide answers to these questions, you will be able to make the most of arbitrage trading. But to be 100% sure that you will be at an advantage, it is highly recommended to resort to a consulting company for help. Experienced blockchain consultants will advise you what aspects and minutiae you should consider, and they can even devise a reliable strategic plan for you. 

Cryptocurrency trading has stirred up the interest among several traders and is bound to get more advanced and popular in future. As for cryptocurrency arbitrage, this notion is also here to stay with us for long as the benefits that it offers seem too lucrative to resist. 


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