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.
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.
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.
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.