Mine top cryptocurrency is becoming increasingly difficult. A large-scale trading is not available to beginners because of the lack of experience and the banal fear of leaving in a minus. Therefore, alternative ways to make money on cryptocurrency are of increasing interest. For example, arbitrage on cryptocurrency exchanges. We will describe the features of this tool!
Arbitrage is a common way to make money on the foreign exchange market. This is a sequence of operations for buying and selling currencies at different sites (spatial arbitration) or for a certain period of time (temporary arbitration). The profit of the arbitrator is calculated as the difference in the price of the purchase and sale of the asset.
This strategy is applicable to the cryptocurrency market. However, here arbitrage is considered to be earnings from the purchase and sale of an asset at different sites (cryptocurrency exchanges). And under the definition of temporary arbitration, classic trading is quite appropriate, in which an asset is bought at a low price and then sold at a high price.
The possibility of spatial arbitrage cryptocurrency is due to the significant variation in prices on exchanges. Attentive traders probably noticed how sometimes the cost of BTC, ETH and other coins differs on Binance and Yobit or HitBTC and EXMO. What is the reason?
First of all, with the peculiarities of the functioning of exchanges with which cryptocurrencies they work, whether they accept Fiat, what options for depositing and withdrawing money offer, and so on.
For example, at one time on the South African stock exchange Golix bitcoin was trading at 28 thousand dollars, while on top sites like Binance and Bitfinex – only 8 thousand each. This paradox is explained by the fact that it is possible to withdraw Fiat from Golix only to a bank account opened in Zimbabwe, and it is generally impossible to transfer funds abroad.
However, for example, you do not need to go to Africa. Right now BTC is trading on Bitfinex at 9800, on Bitstamp – at 9700, on LiveCoin – at 9600, and on EXMO – less than $ 9500. The same goes for altcoins. Sometimes the difference is very significant, and you can earn on it. Moreover, you can earn on arbitration without even going beyond the cryptocurrency exchange.
Arbitrage transactions can be carried out within a single cryptocurrency exchange and between several exchanges. Accordingly, there are two basic arbitration schemes – inside the exchange and between exchanges.
The scheme is very simple and accessible even to inexperienced users. Its essence is to use the wrong stock quotes to make money on the difference in rates. By incorrect, we mean quotes that the management of the exchange has not yet had time to “pull up” to an average level. Most often they are associated with the rate of cryptocurrency to Fiat and are performed in several steps.
There are fewer steps here than with an inside arbitration, but the transaction itself will take more time, since two sites take part in the process, and not one.
There is another type of inside arbitration scheme – static. It is more complex and, unlike the previous two, is suitable only for experienced traders. The bottom line is the choice of cryptocurrencies correlating among themselves and their successive arbitration.
For example, there is a clear correlation between Bitcoin and Litecoin. When one cryptocurrency grows in price, the other, as a rule, falls, and then catches up with the first one and changes the trend.
For example, when BTC falls sharply in price against LTC, experienced arbitragers buy bitcoin on the exchange with the lowest price and then sell on the exchange with the highest. The main thing is to accurately calculate the moment when BTC goes into an uptrend.
In general, arbitrage transactions are considered one of the least risky operations in the cryptocurrency market. However, there are several negative points about which you need to know before moving on to this way of earning.
Many people think that if cryptocurrency is worth $ 10 on stock exchange A and $ 15 on stock exchange B, then the net profit will be $ 5 on one coin. In fact, it is not.
To pay all the commissions takes a significant part of the profits from arbitration. Many traders refused this way of making money at all, because they were faced with a situation where the commission completely blocked all profits.
Transactions within the exchange, as a rule, are instantaneous, but here the transfer of funds from one exchange to another can be delayed. And during this time the course may change in such a way that arbitration will become meaningless.
For example, you bought cryptocurrency on exchange A at $ 10, while on exchange B it traded at 15. However, while you waited for the transfer, the exchange rate on exchange B dropped to $ 12. Your profit has gone down, but the commissions have not gone away. It is likely that in such conditions, you generally go into negative.
Above, we said that there is no specific threshold for entering arbitration. Yes, but only if you just want to gain experience. If your goal is to reach a tangible plus, you will have to invest as well. In one of the examples above, the profit from a transaction with an initial investment of $ 350 was only $ 40. That is not so much compared with the usual trading.
This is not so much a risk as a hook that many new traders come across. Often for a good price is a limited amount of cryptocurrency. For example, you can catch top altcoin on the stock exchange at a price 20-30% lower than the market price, but it turns out that there are only a few dozen coins left in stock. The potential profit from selling them at another site will be mere pennies. And, again, do not forget about the commission.
In words, everyone just bought coins on the exchange where they cost less, and sold them on the one where they give more for them. However, these exchanges still need to be found.
And still it is necessary to calculate the profitability of arbitration (whether the commissions will override profit) and take into account other circumstances (at the same time for transferring funds from one exchange to another). In addition, you need to choose the right cryptocurrency and time window for arbitrage transactions.
Novice arbitragers spend at the computer 6-8 hours a day and constantly monitor prices on different exchanges. However, not everyone is willing to spend so much time for a profit of a few percent.
In addition, often the classic trading with the purchase of coins on a downtrend and selling when reaching a peak price looks more reliable and profitable way of making money on cryptocurrency.
By following these simple recommendations, you can minimize the risks of arbitrage transactions and earn on cryptocurrency, even without a lot of experience in trading. Moreover, according to experts, over the next 2-3 years, arbitration will become increasingly relevant.