Why cryptocurrency arbitrage is needed and how to use it

Cryptocurrency arbitrage (Bitcoin, Etherium, Litecoin, Tron) is a type of trading that involves buying cryptocurrencies in order to sell them at a better rate. The modern cryptocurrency market consists of more than 300 exchanges, where exchange rates vary significantly, sometimes by hundreds of dollars. Therefore, re-selling can be quite lucrative.

 Cryptocurrency arbitrage is divided into:

• Intra-exchange: limited to a single marketplace;
• Inter-exchange: conducted on different platforms;
• Classic: conducted without mutual influence of currency pairs and correlation of their exchange rates;
• Static: when the mutual influence of currency pairs and their rate ratios are taken as the basis for the transaction.

Also, arbitrage is subdivided into spatial arbitrage (the same as interchange arbitrage) and temporal arbitrage, where the cryptocurrency holder waits for the most profitable rate.

The essence of arbitrage is very simple: one must buy the cryptocurrency as cheaply as possible and sell it as expensive as possible in order to profit from the price difference. The profits are most tangible if you conduct multiple buy/sell transactions or have significant resources at your disposal. You also need to take into account the commissions of exchanges and other obligatory charges in order to carry out transactions with the resultant profit.

In inter-exchange arbitrage, the cryptocurrency is bought on an exchange, where it is relatively cheap, and then transferred to an exchange with a better rate, where it is sold. The profit is either withdrawn into the trader’s current account or used to buy a new batch of cryptocurrency. Sometimes traders do not transfer assets between exchanges, but simply sell the currency at a high exchange and buy it at a lower exchange for the same amount.

In intra-exchange arbitrage, the trader is limited to one exchange, saving time, effort, and money. On an exchange, the user buys one cryptocurrency whose rate is most profitable for them and then exchanges it for another and sells it with the profit generated by the rate difference.  

Cryptocurrency arbitrage, regardless of the type, will be profitable if the trader has large assets at his or her disposal, the buying and selling cycles are repeated many times using automation of certain processes. It is also important to choose the exact moment when the price difference is most profitable for the trader in order to maximize profitability.

The undisputed advantage of cryptocurrency arbitrage is the opportunity to profit even with a relatively small start-up capital. It is also attractive because you can do it from the comfort of your own home, and it is also attractive because of its relatively low risk. 

But there are drawbacks as well. In particular, a transaction can be ‘messed up’ by an exchange not being fast enough to complete transactions. There is also a threat of hacking of the exchange or the user’s personal account. In addition, the trader must consider all the specific aspects of the exchange: explicit and hidden commissions, restrictions on the amounts of transactions, and so on. Also, success is impossible without turning arbitrage into a way of life, because this activity, in fact, has to be lived, to be constantly in process, to be successful. And this is not possible for everyone.  

In case of interexchange trading an additional risk factor is the necessity to wait for the time required to move currencies between stock exchanges: from one to two hours, during which the rate ratio may change for the worse for the trader.

Advanced and experienced traders optimize their work using special programs: Gekko, Haashbot, BTC Robot, GoArbitrage, Bibitbot, Cryptotrader.

There are also traders who prefer exclusively manual arbitrage and use online resources that accumulate profile information: BitinfoCharts, Data.bitcoinity, CoinMarketCap. There are also mobile applications with the same functionality: TabTrader (Android and iOS); zTrader (Android only).