How to make money on cryptocurrency arbitration

A feature of the cryptocurrency market is its high volatility. In a short period of time, the value of coins can increase or decrease by 10% or more. But, since there are several hundred such exchanges now, the price of coins on them is not the same. This fact underlies the arbitrage of cryptocurrencies.

Types of Cryptocurrency Arbitrage

Cryptocurrency arbitrage consists in buying coins on one exchange at a lower price and then reselling them on the same or another trading platform at a higher price.

There are two main types of cryptocurrency arbitrage: intra-exchange and inter-exchange

The essence of intra-exchange arbitrage is that asset purchase and sale transactions take place on the same exchange, but with different cryptocurrency pairs. Its advantage is that you do not need to pay a commission for withdrawing funds from the exchange. But the procedure for beginners can be difficult.

In inter-exchange arbitration, the purchase of crypts takes place on one exchange, and resale on another. The user must take into account the commissions for the withdrawal of cryptomonets when evaluating transactions. With small amounts of transactions, this type of arbitration may be unprofitable.

Where and how to make money on cryptocurrency arbitration

Arbitrage transactions can be carried out on crypto exchanges. The top platforms include Binance, Huobi and other well-known crypto platforms.

When choosing a crypto exchange, the following criteria should be taken into account:

• low fees;
• fast transaction speed;
• large volumes of transactions.

It is better not to deal with exchanges that operate illegally.

Cryptocurrency Arbitrage Strategies

In addition to the standard inter-exchange and intra-exchange arbitration, there are several other income generating schemes.

For example, you can use exchange deposits for traders who store cryptocurrency in exchange wallets.

Example

Suppose that a trader stores USDT coins in an exchange wallet. They can be exchanged for bitcoins when the bitcoin exchange rate is low, and then sell these bitcoins on another exchange where their price is higher.

Experienced users can use statistical arbitrage if they frequently monitor coin rates. For example, consider the bitcoin/Ethereum pair. You can earn money by buying bitcoin when its price relative to Ethereum falls, and then selling it when it starts to rise.

Risks of Cryptocurrency Arbitrage

Any operations with cryptocurrency are considered high-risk. Therefore, it is necessary to calculate the winnings taking into account all possible commissions, take into account the spread and liquidity of the cryptocurrency. After the purchase, you need to sell the coins quickly enough until their price has changed. If the liquidity of the crypt is low, the user may not have time to make transactions with sufficient speed.

There are technical risks associated with equipment failures and other force majeure situations.

To assess the consequences of the alleged actions with the crypt, you can conduct a trial arbitration with a small amount of currency to assess the speed of transactions and other factors.

Published: 30 January, 2023