Arbitrage is any transaction aimed at generating profit that results from the use of correct differences in features of identical or similar financial instruments. You should buy cheaply and sell more expensive price. Crypto arbitrage is based on the same thing.
In order to start trading on cryptocurrencies, all that is needed is a computer that is connected to the Internet and initial capital. Arbitration is a simultaneous buying and selling of assets on different markets, in this way to benefit from the price differences between them.
How to earn money on arbitrage?
The basic approach to arbitrage is to do everything by hand. However, there are many bots for arbitrage on the market, as well as tools to monitor all opportunities for arbitrage on cryptocurrencies, which are designed to track simultaneous price movements as well as other differences in the stock exchanges.
Many people are interested in this topic. They usually ask themselves the question – how to earn money on cryptocurrencies? One of the ways is to trade on the stock exchange, or in fact to arbitrage between two different stock exchanges.
In order to prepare for arbitrage it is necessary to establish a control on the crypto \ exchange and possibly verify identity. It is also worth taking an interest in smaller exchanges, which react more slowly to changes in the price of crypto-currency. However, special attention should be paid to opinions and reviews concerning small stock exchanges. Apart from the account on the smaller exchange, one should register on the large ones with a high transaction volume and high liquidity. When searching for services suitable for trading, one should check the specific time of accounting and withdrawal of cryptovalut.
Advantages of arbitrage on cryptocurrencies
A quick way to make a potential profit. The arbitrage in favorable circumstances should not take longer than the time spent on the order to buy, sell or wait for the crypto sent to us. This gives the potential for much faster profits, and than in the case of keeping the cryptocurrencies traditionally in a wallet and waiting for its price to rise. We also have a huge selection of exchanges for direct trading on cryptocurrencies.
There are more than 180 exchanges around the world. With such a large choice there is a really good chance to find large differences in the prices themselves. Unfortunately, we must bear in mind that the cryptocurrencies market is still quite underdeveloped. Cryptotrading is unregulated and divided.
What is more, the transfer of information is slow between the exchanges. In comparison with many popular investment markets, there are few entities on the cryptocurrencies market. Moreover, we must be aware that cryptocurrencies are not stable.
Arbitrage and risk of cryptocurrencies trading
Cryptocurrencies arbitrage sounds like something very easy in theory. So why so few people do it? Well, there are actually a few barriers that we have to overcome. There is also a risk. Unfortunately, we have to accept it. After all, we want to close all transactions with a profit for us.
In order to carry out arbitrage transactions quickly, some coins must be kept on the stock exchange so that they are ready to be used at virtually any time. There is, in fact, a lot of risk involved. Many people found out about it on their own, when they lost all crypto held in the stock market in case of a hacking attack or theft of funds directly by the founders. Each stock exchange at least once fell victim to the hackers.
Most cryptocurrency exchanges charge a commission for transactions, which sometimes also apply to deposits and withdrawals. In addition, it is necessary to take into account transaction fees, which are related to the network of cryptocurrency. You will need to include these costs in your calculations when determining the profitability of a transaction. As you can see, there is a real risk.