What is arbitrage?
Wikipedia defines it as “…the practice of taking advantage of a price difference between two or more market. For example, an arbitrage opportunity is present when there is the opportunity to instantaneously buy something for a low price and sell it for a higher price.” When executed properly, creating a profit from temporary price differences is oftentimes considered a risk-free profit for the trader.
In the context of the crypto currency markets, good traders often try to exploit arbitrage opportunities. For example, a trader may buy a lower valued crypto currency on one Bitcoin exchange and sell it on another exchange at a higher price. The trader can make a profit from this difference.
For example, Bitcoin (BTC) trades on the exchanges Binance and Einstein. If BTC is trading for 6500 on Binance and $6600 on Einstein, then clearly there is an opportunity for arbitrage. A trader can purchase BTC on Binance for $6500 and sell it on Einstein for $6600, netting $100 for the transaction.
BARRIERS TO ENTRY
One barrier to entry is the necessity of having accounts at multiple exchanges. For those with the time and resources required to set up multiple accounts, the reward can be quite lucrative. However, jumping through KYC/AML requirements for each exchange can be a daunting and time-consuming task. Most traders are not willing to undergo these procedures.
In light of this, the solution some traders are turning to is “bot” arbitrage trading. There are companies who specialize in high frequency arbitrage trades that are managed by a software program. The advantages to this approach are that trades are fully automated and continue 24/7. This allows traders to take a passive role and simply collect profits. Fees are deducted for usage of the bot but compared to the net profits these are generally negligible.
Current crypto arbitrage bot returns are +/- 1%/day (see companies listed in the Automated Arbitrage tab above). When compounded over time these returns are quite impressive.
For those who prefer a manual hands on approach, we will soon reveal a regularly updated chart providing the best crypto arbitrage opportunities.