What does crypto arbitrage mean? Is arbitrage profitable? How is Bitcoin arbitrage profit formed? How to Arbitrage Bitcoin? Answers are in our article.
Arbitrage is the transaction of buying and selling value assets in order to gain risk-free profit by taking advantage of the formation of different prices in different markets. The basic logic is to take advantage of the product being traded at different prices in the markets. It is based on the idea of buying the same product from the market where it is sold at a low price and selling it in the market where it is traded at a high price.
If the someone doing arbitrage sells the purchased value asset at a higher price, the person makes a profit easily and without risk.
This method is frequently used in the cryptocurrency ecosystem. As it is known, the price of the same coin may be different in every crypto currency exchange in the world. If people who will do arbitrage can sell the coin that was bought at the right time at a high price in different exchanges, they will make a profit.
Is Crypto Arbitrage Profitable?
Theoretically yes. However, in order to make a profit in practice, it is necessary to follow the markets effectively.
In order for the method to be applied, it is necessary to follow the value of the asset to be invested in different markets instantly. Timing is very important to buy from the market where it is traded at the lowest price and sell in the market where it is traded at the higher price.
While doing this manually is possible during periods of high volatility, it may not always happen. Generally, there are software and algorithms specially developed for these types of operations.
Although it seems easy to implement by definition, the crypto arbitrage method is actually a challenging process. It requires regular monitoring of the market. Inexperienced traders are likely to lose money from time to time while waiting for a profit.
Arbitrage Application / Arbitrage Robot
In the globalizing world order, it has become more difficult to apply arbitrage compared to the past due to the increase in the interaction of traditional markets. Today, when the values in different markets are analyzed, more or less similar prices are observed. The slight variation in prices necessitates the arbitrage player to trade in large quantities in order to make a profit.
On the other hand, nowadays, as transactions are carried out very quickly, it is necessary to access data instantly and to act immediately when the opportunity arises. At this point, arbitrage applications and arbitrage robots come into play.
While arbitrage is performed in traditional markets, software containing algorithms suitable for the purpose are used.
Thanks to the developed software, investors can analyze the prices in different exchanges and make orders to two different exchanges at the same time, and they can buy and sell in one. Software developed for this purpose are frequently used by large institutions.
In the classical market structure, individual investors can apply the arbitrage process, which appeals to giant fund managers and institutional investors, more easily in the crypto currency ecosystem.
The harder it is for individual investors with relatively smaller budgets to arbitrage in traditional markets, the easier it is in cryptocurrency markets. In the cryptocurrency ecosystem, arbitrage is easier but more risky compared to traditional markets.
Crypto environment is a very active market. It is easy and costless to trade from all over the world, but it is difficult to catch prices at targeted levels since transactions are not carried out in real time.
Going from the Bitcoin arbitrage example, we can list the exchanges where BTC prices vary on the crypto money data site CoinMarketCap.
At the time of writing this article, the BTC / USD parity was at the average level of 9.332. Bitcoin; As can be seen in the above list, Kraken was traded at $9,310.00 on the stock exchange, while it found buyers at $9,374.34 on the Livecoin exchange.
So, theoretically, a person buying 1 BTC from the Kraken exchange and selling it on the Livecoin exchange would have made $64 instantly.
Is Arbitrage Profitable with Altcoin?
When we apply the arbitrage method to altcoins, we again encounter a similar picture with Bitcoin. However, as the prices of altcoins are low compared to Bitcoin, it is possible to make high volume transactions.
If we go from the example of Dash (DASH), which is traded at $70.61 at the time of writing this article, Bittrex was sold at $70.24 on the stock exchange, while EXMO found buyers at $70.98 on the stock exchange.
In other words, it is theoretically possible to make $0.74 profit from the arbitrage of 1 Dash.
Let’s make a comparison between Bitcoin and Dash as an example:
An investor with a savings of $10,000 can buy 1,072 BTC or 141.62 DASH at the above-mentioned exchange rates.
Again, in case of arbitrage between the stock exchanges mentioned above, 1,072 BTC worth $10,000 earns $68.6 at the end of the transaction.
If the investor wants to arbitrage $10,000 through DASH, he can make a profit of $104.8 after the 141.62 DASH transaction.
In other words, it is theoretically possible to make a profit in a short time with the market differences between the current exchange rates and stock markets.
It should not be forgotten that the cryptocurrency ecosystem is a very active and volatile market. Consequently, it is necessary to act very quickly in order to do the operations that we have given above. Since sending money from one exchange to another will be a waste of time, having deposits in more than one exchange will provide speed.
We have said that there are various applications and algorithms for arbitrage transactions in traditional markets. The same is true in the cryptocurrency ecosystem, but one needs to be very careful about it. There is a safer environment than traditional markets are regulated by law. The same is not true for all crypto money exchanges.
You should always be suspicious of announcements like “Bitcoin arbitrage robot”, “Bitcoin arbitrage sites”, “Altcoin arbitrage software”, “Make money with arbitrage” that you will see on the Internet.
Think over and over again about giving control of your money to someone else or the app. Don’t trade without being 100 percent sure.