Cryptocurrency Arbitrage Not Only for Experienced Traders

Marcin Iwański
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The interest in crypto is systematically growing and seems to have no end. There is a great number of endless pages about cryptocurrencies, blockchain and trading guides.

You can find every information you need, from beginners’ manuals, where you can find out what cryptocurrencies are and their origin, to specialised forums filled with posts about earning money on bitcoin mining, to professional blogs with expert analyses and advice for traders or just users.

Currently, cryptocurrency trading is one of the most popular ways to earn money online. In fact, you only need a device connected to the network and capital to start your adventure with cryptocurrency trading.

Cryptocurrency arbitrage not only for specialists

At the first sight, it seems that the crypto industry requires the highly specialized knowledge necessary to use cryptocurrencies properly to make a profit. However, after a closer look at the necessary information and the terminology, you will see that the cryptos are accessible to everyone. In the following part of the text, we have included an example: how easy it is to earn money by arbitrage of 2 crypto exchanges (Coindeal.com and BitBay).

Of course, do not assume that you do not need any knowledge or experience, it is easy to learn how to invest, but you should remember that investment involves risk and expertise gives you a broader perspective.

As in most industries, the success is made up of many factors; knowledge of the field, familiarity with it, as well as expert mastery of the subject, are some of them.

However, here you can earn quite a lot at the very beginning of your adventure with the cryptos. Especially if you are familiar with the concept of arbitrage, which allows you to make profits without great difficulty and without too high level of risk.

Cryptocurrency trading on exchange platforms

If you are familiar with regular trading, you can skip this part.

One of the way to earn money from digital currencies is to trade on exchanges. It conducted on the basis of buying a certain quantity of the cryptocurrency and then reselling it at the best moment – i.e., when its value increases. To do this, it is necessary to find an exchange platform, which will suit you. For example, the user, for whom anonymity is a priority, will look for an exchange where it is not necessary to verify, and other person may look for maximum security and will want to use the platforms with the best security standards. But for now let’s focus on the main subject; arbitration.

Cryptocurrency exchange platforms arbitrage.

Arbitrage is not a new way of earning money but, it doesn’t seem to be very popular, which may be surprising because it can generate real profits. It is about earning money from the difference in prices on individual exchange platforms from arbitrage (simply: buy cheaply on one exchange and sell expensive on another).

What arbitrage is?

Arbitrage is a low-risk strategy for acquiring assets, which involves purchasing goods in a market where the price is relatively low in order to sell it in another market where the price is higher. The essence is to notice the price difference of the purchased product in the same or different markets and to resell it profitably, after subtraction of transaction costs.

Examples of arbitrage using examples (Coindeal and BitBay)

To make a sufficient profit from arbitrage, we have to find two cryptocurrency exchange platforms which have huge price differences for the same currency pair (approx. 4-6%). Arbitrage can be profitable even with a 1.5-2% difference, but we can easily find differences between 4-6%, and sometimes even 10%. Below you will see examples of differences in courses at different times.

Example 1) In the following case, the results are presented at 10:00 am on 17 July 2018 for Coindeal.com and Bitbay.net. At that time, the difference between BTC/EUR at Coindeal and Bitbay was about 6.8%. See below for more details:

coindeal

 

arbitrage
As it can be seen from the example above, the sales price of the 4 BTC was EUR 5314 to Coindeal.com. On the other hand, the price of the highest bid on Bitbay.net was EUR 5,681, so assuming that we give the lowest bid, we can expect that we will sell BTC at a price of about EUR 5,680 because it will be the best bid for the buyer at the moment. In short:

Purchase price: EUR 5314 (for Coindeal)
Selling price: EUR 5680 (for Bitbay)
Exchange rate difference: 6.8%

Example 2) This time we compare the results of the BTC/USD currency pair on the Coindeal and Bitbay exchanges with 10:00 on 23.07.2018 when the price difference was 4.3%.

arbtirage

arbtirage

Purchase price: $7200 (on Coindeal)
Selling price: $7515 (on Bitbay)
Exchange rate difference: 4,3%

Comments: The above examples prove that exchange rate differences exist, i.e., arbitrage is possible, but remember to consider not only the price but also the transaction volume – especially for larger amounts of transactions.

Example 3, time 9:00 24.07.2018

arbitrage

 

arbitrage

In example 3 we have 0.23 BTC available for purchase at 7300USD and 0.5 BTC at 7400 USD. After buying and transferring BTC to Bitbay practically from the hand (without waiting for the buyer) we can sell 0.5BTC at the price of USD 7600 if we issue the best offer it at the price of USD 7730, that is:

Purchase price 0.5 BTC:7354 USD (weighted average: 0.23 BTC x 7300USD and 0.27 BTC x 7400 USD (per Coindeal))

Selling price 0.5 BTC: $7600 straight away or $7730 if you are waiting for buyers (at Bitbay)

Summary: How much can you earn from arbitrage?

First example:

We bought BTC for EUR 5314 and sell EUR 5680 each, which gave 6.8% of the profit (after deducting the costs of BTC transmission and commissions for bank transfers, it gives about 6.6% of the profit). It is easy to count that in the case of transactions on larger amounts like:

EUR 1,000, we can earn around EUR 68 on one such transaction,

The profit from EUR 10 000 can be EUR 680,

EUR 100 000 profit per transaction EUR 6800

The second example, we buy BTC for $7,200 and sell it for $7,513 each, which is 4.3% of the profit:

We can earn about USD 1,000 on one such transaction,

The profit of USD 10,000 may already amount to USD 430,

100,000 USD profit per transaction – 4300 USD profit per transaction

Usually, arbitrage pays for itself with a 1-2% difference. However, there are unique opportunities to find differences of 10%. Everything depends on where we buy and where we sell cryptos.

How to prepare for Coindeal and Bitbay arbitrage

For simplicity’s sake, here we will also use examples of the Coindeal and Bitbay exchanges and the BTC/EUR pair. Getting to the point: opportunity to earn money from arbitrage is not available all the time, we have to prepare ourselves properly and wait for the right moment. To take advantage of this opportunity, we need to act quickly and without delay (e.g., due to the time required to verify your account). For this purpose, it is necessary to do so consecutively:

Register accounts on the exchanges you want to work with (link to CoinDeal’s registration)

Verify the accounts on the exchanges.

Deposit EUR into the exchange with a lower price (in our case; CoinDeal) – that is where you will buy.

Wait for a situation when the selling price of BTC (expressed in EUR) on the first exchange (Coindeal) is lower than the buying price of BTC on the second exchange (Bitbay) and buy when the difference is satisfactory (often this difference is around 5%, sometimes drops to 1-2%, but we can also encounter exceptional situations in which the difference is as high as 10%).

Is arbitrage on cryptos profitable?

Well, as we can see from the presented example, the profit on arbitrage on crypto is easy to achieve. The only difficulty is to find a difference in the prices of currency on two different exchanges. Of course, this requires monitoring on proven crypto exchange platforms. Proven, because it is worth making sure if a given platform is not suddenly switched off or its owners apply some semi-honest practices. Both, CoinDeal and Bitbay can be recommended, but if you know other examples, we encourage you to include them in the comment under the article.

To get back to the point – if we find the right difference on Bitcoin’s courses, then it’s a matter of making a precise calculation – how long the transfer will take, whether you have to pay a commission, and if so, how much, if there are any other costs or risks to be taken into consideration. If, after deducting all the costs, the operation is still profitable, what else to think about? However, one should always be aware of all the risks associated with arbitrage.

What to pay attention to during the arbitration cryptos

If, after reading this part of the article, you have concluded that arbitrage is a good option, it may be time to give up your work and earn money only by arbitrage, from now on, but do not do so. Unfortunately, in practice, making money from arbitrage, although possible, is associated with various risks which may cause our business not as profitable as we hope.

Cryptocurrency long transmission time

One of the threats related to arbitrage on cryptos is the time when they are sent between exchanges. For example, a transfer of Bitcoin (often still via a wallet) can take up to an hour or more depending on the fee you pay. How does this affect arbitrage? Unfortunately, we run a very high risk in this case, because the price may change during sending your assets, and you may end with a small loss.

Costs related to transmission of crypto

Another threat, which has already been mentioned in principle, is the cost of transmission. If you want to transfer a particular currency from one exchange to another, you have to take into account the fact that you will have to pay a fee for the network.

Standard threats associated with cryptocurrencies

Crypto trade involves several risks, which are particularly evident in the case of arbitration. Seeking opportunities for arbitrage may lead us to use less reputable crypto exchanges on which we would not normally invest. As we know, in the history of cryptocurrencies there were situations when investors and the exchange platform lost their money accumulated on the exchanges. Long-term investments made by experienced investors are more secure – the cryptos are mostly stored in secured wallets. In the case of arbitrage, however, our assets must be kept on the cryptocurrency exchange platforms for the most part, which makes us more vulnerable to fraud and theft of our assets.

Summary

The growing popularity of cryptocurrencies is since it is easy to earn money, for example using arbitrage. All you need is Internet access, some free time and initial capital and you can start monitoring the exchanges, such as Coindeal or Bitbay, to find the difference in the Bitcoin courses. In the examples, we have shown that at present the difference in exchange rates is 6%, which means a potential profit for you and there are differences in exchange rates of up to 10%. With the skillful handling of your own costs, you can quickly make real money. However, before you start looking for high differences and invest your money, think carefully about all the risks associated with arbitrage and cryptocurrencies in general. Those who can control their emotions are always rewarded, the impulsive behavior can only do harm to you. Especially in arbitrage, this skill is useful, as by definition.

 

Article made in association with : https://kryptowaluty2.pl/jak-zarabiac-na-arbitrazu-gield-kryptowalut/

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