What is Crypto Arbitrage and how does it works?

In the beginning of explaint What is Crypto Arbitrage, it is necessary to explain what the arbitration actually is. Simply put, this is a trading approach where a trader uses different prices of the same asset in different markets. In other words, he buys cheaply somewhere, sells more expensively elsewhere, and repeats this process until prices equalize due to the law of supply and demand. What is important is that at the end of the arbitrage cycle in the arbitrage scheme, the trader has have to had more money in his account than at the beginning.

For a simpler understanding of what it actually is, let’s imagine a situation where Bitcoin costs $1,000 on Exchange A and $990 on Exchange B. If we buy Bitcoin on exchange B and sell it on exchange A, our potential earnings are $10. Of course, it’s not that simple in practice, several variables come into play, such as fees for withdrawing and depositing money on the stock exchange, etc.

“Bitcoin arbitrage is buying Bitcoins on an exchange where the price is very low and selling them on an exchange where the price is relatively high.”

Is this trading for everyone?

The answer is yes but also no. The trading itself is relatively simple, but due to the number of variables that enter into this process, it is quite difficult to estimate the potential earnings. At the end of the day, you can lose money. On the other hand, it must be said that there are many applications that can make the whole process easier for you.

It should also be said that for successful arbitrage trading you need to effectively compare prices on individual exchanges. Doing it manually is possible, but impractical. There are also semi-automatic and automatic solutions, for example onecrypto.com.

What should you watch out for?

As we mentioned above, several variables enter the process. For example, the fees may be lower.

– Cash deposit fees,

– Cash withdrawal fees,

– BTC deposit fees,

– BTC withdrawal fees,

– Transaction fees,

– Speed of transactions.

We would emphasize the last point above, which is the speed of transactions. You can compare transaction costs such as fees quite quickly and calculate potential profit, but the speed of the transaction, if it is slow, the value of the Bitcoin or other digital currency it trades with may change in the meantime, as a result of which the transaction may no longer be so advantageous, or it may be lossy.

As you can see, performing Crypto Arbitrage is not an easy task, although it may seem like it.