Cryptocurrency arbitrage – using the price difference to make money. Users buy tokens at one site cheaper, sell at another at a higher price. The difference is profit (including costs). Special software is used for analysis and decision-making. It is necessary to consider the nuances, features of each instrument, trading platform. Income can be influenced by fees for cryptocurrency transactions. For serious earnings, you need to have a large deposit. With a small amount, you can only try out various strategies, you should not count on profit.
The price of cryptocurrency differs on different platforms. Factors affecting the cost:
- features of the token – emission, mining, halving;
- movement of a large volume of assets;
- economic changes in a country or region (default, economic growth);
- political changes;
- government action in relation to cryptocurrency, changes in legislation.
Understanding all the processes helps to make money on arbitrage.
Legality of arbitration
Cryptocurrency arbitrage operations are no different from others. The legality of such actions depends on the state, its legal position in relation to digital assets.
It is necessary to know the peculiarities of the legislation of the country in which the cryptocurrency exchange is registered. Otherwise, you can be left without profit.
Features of arbitration
The essence of the procedure is reduced to the sequential execution of a number of transactions. Each of them pursues the same logic – income based on the difference in price.
Profit depends on factors:
- volume – for intra-exchange trading;
- the presence or absence of tools at the sites;
- lack of centralized management;
- the disunity of trading platforms.
For arbitrage trading, it is not important to understand the trends and reasons for changes in value. The main thing is to identify the difference in the price of the coin in time and carry out the transaction.
The classification of arbitrage trading schemes depends on temporal and spatial parameters. The first category – operations are performed on the same exchange, but at different times. Spatial schemes – simultaneous trading on different sites. Arbitration options:
- intra-exchange trade;
- inter-exchange transactions;
- static approach.
Possible technical problems that will affect profits:
- problems with the Internet;
- failure in the trading platform;
- low speed of transfer of assets between exchanges.
In cryptocurrency arbitrage trading, the speed of the transaction is important. Delay can lead to a drop-in profits or losses. The asset may fall in price or the quotes will level out. Arbitrage will receive a loss due to commissions, mandatory payments.
Trader’s actions when arbitrating cryptocurrencies:
- choice of strategy, arbitration scheme, instrument;
- selection of software – without trading bots, analytics software will not work at a serious level;
- development of an algorithm for their actions;
- calculate all technical costs – commissions, payments for cryptocurrency input;
- consider the transaction speed of the selected instrument.
The rules of the cryptocurrency exchange may provide for a delay in the operation to withdraw the cryptocurrency. This must be considered in advance.
Types of arbitrage trading
There are classic spatial arbitrage trading methods:
- one asset is used on different crypto-exchanges;
- work is carried out with 3 pairs of cryptocurrencies on one site;
- trades are conducted simultaneously.
Classic time arbitration-related instruments are used, the rates of one pair change in relation to the other.
Static arbitration is also distinguished. Used when conditions are met:
- there is a big difference between the current volatility – very high or low;
- there is a multidirectional movement of digital assets.
Static arbitrage has more risks than classical methods. To use it, you need a lot of experience, beginners should not even start with this way of making money on the inefficiency of the market.
Where to begin
Cryptocurrency arbitrage trading requires serious preparation. First of all, you need:
- choose crypto-exchanges for work, as a rule, they use several platforms;
- on each platform, you must register in advance, go through verification;
- choose software, trading bots;
- determine the number of funds, develop a strategy.
For serious trading, you need specialized software for monitoring and analysis. Bots can not only analyze the market but also make deals.
Particular attention should be paid to commissions on cryptocurrency exchanges for the input of fiat money, operations with coins (including transfer to another platform), withdrawal of profits. The size of the commissions can cancel out all the profits, especially if the size of the deposit is not very large.
Investing is always a risk. You can reduce it to a minimum if you turn to professionals for help. Entrust the management of your funds to FOBS Asset Management.