Every bitcoin exchange has its price for the cryptos, and this pretty much has birthed the concept of arbitrage. Arbitrageur communities are growing, sharing knowledge on arbitrage bots and tricks on avoiding risks such as price movement, slippage, and transfer fees.
A savvy trader who is not averse to a bit of risk can quickly grow their wealth by playing the different exchanges against each other, and there is nothing wrong with that. It is completely legal.
What is bitcoin arbitrage, and can you solely profit from it?
What is Bitcoin Arbitrage?
Bitcoin arbitrage is a relatively new concept of purchasing bitcoins in one exchange where the prices are somewhat lower and selling them on another where the prices are higher for a profit. The bitcoin price in any exchange is based on the last trade made on that platform.
Typically, different exchanges have different numbers of traders with varying preferences. Very rarely will the numbers correlate precisely, which makes arbitrage possible.
You can view the bitcoin exchanges as closed markets whose crypto asset prices depend on trading activity volume. This makes the bitcoin prices in the exchange quite volatile.
Some traders will take advantage of this volatility and purchase bitcoins in the exchange where the prices are lower and sell where the prices are higher for a margin.
Best Cryptocurrency Arbitrage Exchanges
The trick to succeeding with cryptocurrency arbitrage is to find opportunities to maximize earnings potential as much as possible. You can achieve this by using crypto exchanges with the lowest exchange prices and easier verification processes.
1. Binance – Best for safety of it’s platform
Binance is a big name in the crypto industry, offering more than 100 cryptos to trade. Despite being an established crypto exchange, Binance has some of the lowest fees out there (0.1%). This translates to a better arbitrage profit margin.
You can still lower the transaction fees by up to 25% when you pay fees using the native coin, BNB. The exchange also has some of the most advanced charting you can use to your advantage.
But the cheap transaction fees are not the only benefit of trading on Binance. It is one of the safest exchanges, employing among other security strategies, two-factor authentication . The exchange also has higher trading volumes to guarantee competitive prices – something that arbitrage traders love to hear. However, Binance may not be ideal for novice arbitrage traders because of the knowledge and skill level required.
Pros:
- Well established and low fees
- Safe trading
- More advanced charting
Cons:
- It might be a bit complicated for novices
- Several states in the US not supported
2. Kraken – Best for its low fees
Kraken is another one with some of the lowest exchange fees, and therefore perfect for arbitrage. It accepts a fair amount of fiat at low rates, making it easier for trading. Speed is of the essence when it comes to arbitrage trading, and having fiat at a good reach hastens the process.
As unbelievable as it may sound, Kraken offers up to 0% fees meaning that your trades stand a better chance of making reasonable profits. The amount you would lose to payments is negligible, and the exchange platform is considered one of the most secure.
Kraken supports up to 150 cryptocurrencies to widen your options. Granted, you can conveniently use bank transfers to start trading. The exchange has high volumes and better liquidity than most others
Pros:
- Reliable and secure exchange
- The exchange accepts a fair amount of fiat
- Up to 0% low fees
Cons:
- Its customer service may sometimes be a bit slow
3. Cex.io – Best for the user-friendliness of its platforms
If you are new to cryptocurrency trading, you will be looking for the most user-friendly platforms, and Cex.io is at the top of the food chain in that aspect. It has good trading volumes, and the prices are quite competitive for arbitrage.
Furthermore, the exchange prioritizes safety and security more than anything else. It uses email notifications and two-factor authentication among other security strategies.
Making profits in arbitrage is a sweaty affair, and it would be quite tragic if some chap made away with it.
The fees are between 0% and 0,25%, which is among the lowest in the industry. But more than anything, the cryptocurrency exchange stands out for its excellent customer support. It is not once or twice that you will need help when arbitrage trading.
Sometimes, the verification process takes longer than usual, and this eats into your earnings. Having easier accessibility to customer support makes it possible to push some of the issues along to prevent losses.
Pros:
- Easy to use even for beginners
- Low fees and competitive prices
- Secure platform for arbitrage
Cons:
- Coin option are not aplenty
4. Bittrex – Best for it’s fees structure
The small fixed Bittrex fees allow the trader to determine costs and final profit after trading. In fact, the fees are as low as 0.25%, which is an excellent thing for arbitrage.
The exchange is also one of the fastest in verification and trading, which safeguards your profits significantly. Bitcoin prices are sometimes very volatile, and extended wait periods for verification or transfer can lead to losses.
Like the others in the list, Bittrex has a wide variety of tradable crypto-assets. It also accepts various fiat currencies for more effortless transfer and trading.
But one of the stand-out features of Bittrex is security and safety. It uses cold storage devices to safeguard your crypto assets. As a result, you can patiently wait for the prices to change for the better before you make a move without having to worry about security breaches.
Pros:
- Small fixed fees for easier trading
- Fast crypto trading
- Accepts various fiats and cryptos
Cons:
- The platform may not be quite user friendly for newcomers
- There have been several complaints about their customer care services that may be below par
5. Coinbase – Best for its long-standing reputation
The simple to use crypto exchange platform is another one that supports secure arbitrage trading. The exchange supports fiat currencies and is one of the safest.
The fees are relatively low, not the lowest, but the user experience is exceptional. This combination of factors encourages trading cryptos for profit. Coinbase has top-tier security features to safeguard your investment and ensure you are getting maximum benefits from arbitrage trading.
Coinbase has managed to stay clear of controversy and nefarious activities quite common with others.
It boasts a minimalist design, straight-forward, and easy to use platform for even beginner traders. You don’t have to waste time navigating through advanced features. Even better, the cryptocurrency exchange has high liquidity, which is suitable for arbitrage.
Coinbase has good customer support, and you can expect a response in just under 5 minutes.
Pros:
- Simple to use
- It supports fiat and is one of the most secure
- Exceptional user experience
Cons:
- It is not available in all countries
- It does not support some of the less known coins
How to choose the Best Arbitrage Exchanges
The choice between bitcoin exchanges for arbitrage depends on a handful of factors, such as;
- The time it takes to verify transactions: The longer it takes, the less the projected take-home earnings because the prices can change at any time. Please find out the time it takes to verify large transactions in particular exchanges.
- Fees charged: Of course, you will need to trade large amounts of bitcoins to make any reasonable profit, and long verification processes will eat into your profits. Check the exchange prices you intend to trade and other variables such as fiat deposit and withdrawal fees and bitcoin deposit and withdrawal fees.
Parting Shot
Cryptocurrency technology has brought a lot of good to the financial markets and the investment world. Bitcoin arbitrage is one of the offshoots, and any nifty trader can take advantage. However, it is not as simple a method of making passive income as it may seem to some people.
There are several variables that the arbitrager should keep tabs on, such as exchange fees, time, and others that may act as barriers to arbitrage and cut into your profit. But arbitrage is not speculative. It is a positive process, and making money off it is possible. There are now arbitrate bots and tools such as Coinigy that you can customize to make the process easier.
FAQ
Is Cryptocurrency arbitrage profitable?
Cryptocurrency arbitrage profits depend on various factors apart from bitcoin's price in a particular exchange platform. There are others like verification time, exchange prices, bitcoin deposit, withdrawal fees, and fiat deposits and withdrawal fees. Typically, you will need a sizable amount of capital to make any headwind in cryptocurrency arbitrage. Copy and paste this simple calculator to determine how much profit you stand to make.
Is Cryptocurrency arbitrage legal?
Arbitrage is just like any other trade and, therefore, completely legal. All you will be doing is to exploit the price gaps. Nothing wrong with that.
How does arbitrage trading work?
Arbitrage involves purchasing crypto assets in an exchange where the prices are lower and selling where they are low. It's pretty much like trading in some physical commodities in the market. Crypto assets are growing in popularity and use, and this supports arbitrage in a way. There is a way to exploit the price volatility in different exchanges and laugh all the way to the bank.
