A Guide to Crypto Arbitrage

Blogging
AffiliatePal is reader-supported. When you buy through links on our site, we may earn an affiliate commission.

Crypto arbitrage is a strategy where investors purchase a cryptocurrency on one exchange, and then immediately sell it on another exchange for a higher value.

Cryptocurrencies, including Ethereum and Bitcoin, trade on hundreds of different platforms out there, which means that sometimes, the value of the token or coin can differ from one exchange to another. This is where arbitrage strategy comes in.

With it, you can take advantage of the fact that the token that you are wanting to trade is selling for cheap in one place, and at a higher rate in another. Using crypto currency arbitrage, investors make the most of the opportunity to trade cryptocurrency quickly and make small profits.

All these profits of course add up, so it is similar to traditional day trading.

What Kinds of Arbitrage are There?

There are a number of different ways that investors can conduct their cryptocurrency arbitrage strategy. Let’s take a look.

·       Spatial Arbitrage

This type of arbitrage strategy involves trading virtual crypto currencies across two different exchanges. It is a relatively straightforward way of conducting arbitrage. It takes advantage of price discrepancies, but it can expose the trader to risks like transfer costs and times.

·       Spatial Arbitrage without Transfer

There are some traders out there that try to avoid the risks of transfer times and costs. As an example, they might go long Bitcoin on one platform, and then short on another, and wait until the two prices converge. This lets them avoid transferring tokens and coins from one exchange to another. However, they might still have to pay a trading fee.

·       Triangular Arbitrage

This kind of arbitrage strategy makes the most of pricing inefficiencies among different pairs of cryptocurrencies on the same platform.

You are going to start with one cryptocurrency, and then you’re going to trade it for another cryptocurrency on the same platform, one that is undervalued compared to the first cryptocurrency. With your second cryptocurrency, you can do the same to a third, and on and on while you make a profit.

How to Trade with Arbitrage Effectively

Of course, this kind of cryptocurrency trading strategy requires you to be near a device at all times, because pricing in the cryptocurrency industry can change so quickly, you will want to make the most of these fluctuations.

The trouble though is that you’re probably not ready to quit your day job yet and throw yourself completely into arbitrage trading.

The good news is that there are cryptocurrency arbitrage trading apps and trading bots out there that can help you with your trades so that you can set up specific arbitrage strategies and walk away from them, knowing that the app or the bot is going to do the work for you.

This is perhaps the most efficient way to trade with arbitrage these days, especially if you already have a relatively full schedule. Just keep in mind that not all arbitrage trading apps and bots are created equal, so you will need to do a little bit of research to find one that it’s worth your time.