Venezuelas Petro Will Be Used for Surveillance, U.S. Economist Says

Sweden Urges Ukraine to Look Into $70 Million Cryptocurrency Fraud Scheme

Bitcoin Breakout, But Medium Downtrend Intact For Now Price Analysis

HTC Launching Home Blockchain Router Capable of Running Bitcoin Nodes

Chainlink Sets Two New All-Time-Highs, Is It Still a Buy? Price Analysis

Square Crypto Doubles Down on Supporting Bitcoin Developers

Bitcoin Breakout, But Medium Downtrend Intact For Now Price Analysis

Chainlink Sets Two New All-Time-Highs, Is It Still a Buy? Price Analysis

Ethereum Consolidating as Small Uptrend Languishes Price Analysis

Bitcoin Lays Cautious Base in LTF Uptrend Price Analysis

Chanlink at Breakout / Rejection Scenario As It Retests All-Time-High Price Analysis

Bitcoin Is Bouncing but the Larger Downtrend Still Stands, for Now Price Analysis

BitMEX Is Not Authorized to Operate in the UK, Says Countrys Financial Regulator

Binance, Coinbase Among Top Crypto Exchanges Targeted by New Trojan Virus

Crypto is Fueling Organized Crime in Latin America, New Report Claims

Rakuten Wallet Launching Crypto Margin Trading in Spring 2020

Kraken Saves Historic Hackerspace Noisebridge with 17.5 BTC Donation

Turkeys Akbank Becomes First Bank Ever to Integrate Directly With Binance

The Internet Inventors Trilemma; How Can Blockchain Help Solve It?

Cryptocurrency in 2025: What Does the Future Hold for Digital Money?

Coinbase Launches Dedicated Mobile App for Coinbase Pro Users, but Was It Needed?

Why the CFTC Chairmans Comments About Ethers Status Are Not That Big a Deal

This Key Market Measure Shows Bitcoin Is Dominating the Cryptocurrency Market

JP Morgan Report: Mainstream Adoption for Blockchain Still Years Away

Half of U.S. Organizations Compromised by Ransomware and Phishing Attacks, Report

Cryptocurrency Hackers Were More Active in 2019, but Were Less Successful

Monero Cryptominers Exploit Windows 7 EternalBlue Vulnerability

Fundstrats Tom Lee: Bitcoin Can Gain 100% in 2020

BitMEX Report: Almost All IEOs Down 80% or More


How Exactly Does Crypto Arbitrage Trading Work?


How Exactly Does Crypto Arbitrage Trading Work?

Written byEvan Francis, CEO & co-founder ofCoygo Inc. which provides tooling for professional cryptocurrency trading and insights. A cryptocurrency advocate since 2010, Evan has years of experience working as a software engineer in fintech before leaving his corporate job to pursue a full-time venture in the cryptocurrency and digital asset space.

You may have heard of people mention arbitrage trading from time to time, but do you really understand how it works? Lets dive into the different approaches to arbitrage, and how it works when trading crypto.

Arbitrage is defined as the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset. In simpler terms, it means that a trader purchases some asset (for example BTC) then sells it for a higher price on a different exchange or trade pair. There are a few different ways to do this, each with their own upsides and downsides.

In order to profit off of arbitrage there needs to be a difference in price across exchanges or markets. For example, 1 BTC might be sold for $8,000 on one exchange and $8,100 on another. Why is there a price difference? This is because exchanges dont have a set price for any asset, they maintain an order book which is a list of all of the prices that other people are willing to buy or sell that asset (because they have open buy or sell orders that are waiting to be filled). When you want to buy BTC on an exchange, you will buy it for the lowest price that someone is willing to sell it for, say $8,000. If there is nobody else looking to sell BTC for at a rate of $8,000, then the next lowest selling price will be used. That would depend on what other people have opened orders for, it might be $8,000.10, or $8005. Due to this mechanism, prices are always changing.

Finding a big price differences, or spread, that you can take advantage of for profit can be hard. You need to be constantly watching real-time ticker (price) data across a number of exchanges, and doing the math to figure out how big the spread is. A spread of 0.10% probably wont be profitable due to exchange trading fees, but a spread of 3% or so could be used to easily make a profit.

In reality, youll want to use some type of tool or custom spreadsheet to find spreads in real-time. These are often called a crypto arbitrage scanner or something similar. Profitable opportunities sometimes only exist for a short amount of time so having assistance in finding these spreads is crucial. There are a number of options to help with this, such asCoygoorArbiTool. Below is an example of an arbitrage scanner.

Now that youre able to find a sizeable spread, its time to place your trades and (hopefully) make a profit. There are a few ways to perform arbitrage, I will describe two different options.

This is probably the most commonly discussed approach. You buy an asset on one exchange with a lower price, transfer it to another exchange where its being sold for more, then sell it on the second exchange.

This can be dangerous and unpredictable because transferring crypto can take time (for example Bitcoin transactions settle in 10 minutes on average) and there are transfer fees that must be considered as well. By the time your transfer completes to the second exchange the price spread may no longer be big enough to make a profit, or your transfer fee might negate any potential profit.

A faster and more reliable option is one that doesnt involve transferring between exchanges, but the caveat is that you must already hold the asset youre selling on the first exchange that you want to buy on, and you must already hold the asset that youre buying on the second exchange that you want to sell on.

Say you found a spread in the DASH-ETH markets on two exchanges. Youre going to be buying DASH with ETH on exchange A, and selling DASH for ETH on exchange B. So you must already be holding ETH on exchange A, and DASH on exchange B. When there is a profitable spread between the two exchanges you can place a buy on exchange A and an accompanying sell on exchange B. You have now increased your portfolios overall value, its just spread across two exchanges.

This involves performing arbitrage all within the same exchange. You find spreads between three different assets. Lets take a theoretical example scenario: BTC-USD is being traded for $8,000, BTC-LTC is being traded for 50 LTC. You would think that LTC would then be traded for $160 ($8,000 / 50), but the LTC-USD is actually trading at $175. This is a spread that you can exploit with arbitrage.

One can buy 1 BTC for $8,000 on the BTC-USD market. Then trade your 1 BTC for 50 LTC on the BTC-LTC market. Then you can sell your LTC for $8,750 (50 LTC x $175) on the LTC-USD market. You started with $8,000, and after three trades you now have $8,750, a 9.4% profit.

There are some things that you should keep in mind when looking to make a profit with crypto arbitrage. First, a spread might look profitable (some tools like to advertise how they can find a 30% spread), but if there is no liquidity you wont actually get that much in profit. If there is a thin order book you might only get $10 worth of BTC at the last price which was used to calculate the profitable spread, then the rest of your order will eat through the order book and you could end up paying a very unappealing price. In general you should stick to markets that have decent liquidity. A quick glance at a depth chart should give you a good idea of a markets liquidity.

Another thing to note is that many other people and bots are trying to exploit these arbitrage spreads, so they wont last long. For that reason, youll probably want to use a tool to help assist you in placing these trades. You dont want to be bouncing between a bunch of different windows placing trades when your speed determines if you make a profit or not. There are a number of different tools out there that can help with trading on multiple exchanges at once.

Hopefully youve got a good grasp of how arbitrage works and how you can use it as a tool to make a profit. Crypto trading can be a profitable game if done right, good luck with your trading!

Bitcoin Ransomware Hackers Lose Control of Their Decryption Tool

These Top Exchanges Have Been Hacked so Far or Not

VC Firm Andreessen Horowitz Unveils Wholl Teach at Its Free Crypto Startup School

Next Bank of England Governor Andrew Bailey Says Bitcoin Has No Intrinsic Value

Bitcoin Joins the Party As the Dow Celebrates Its Best Day Since March 2009

Mike Novogratz Explains the Crypto Markets Most Recent Sell-Off

Blocktown Capital CEO: 5 Years Ago Bitcoin Was at $270 Didnt Sell Then Not Selling Now

Morgan Creek Digitals Anthony Pompliano Explains Why He Is So Bullish on Bitcoin

Tim Draper Explains Why Buffett Is Bashing Bitcoin, CZ Invites Him to Lunch