Cryptocurrencies, like the very popular and largest blockchain network Bitcoin, followed by Ripple, Ethereum and Tether, have different exchange rates which can be quite substantial. This provides a very good platform for arbitrage traders to jump in and cash the large price differences.
Arbitrage means buying and selling simultaneously of currency, security, or commodities in the different market as to take advantage of different exchange rates in those markets and generate a profit from that.
For example, if a person A buys a security asset of $200 in one exchange X, while simultaneously sells that assets on an exchange Y where the price of that asset is $195 at the same time, making a risk free profit of $5. This is Arbitrage trading.
The Market is kept relatively efficient because of these opportunities for arbitrage trading. Because this trading ensures that the prices across different exchange markets are more or less the same for the asset, if that is not the case, then, the arbitrage traders will come and capture the profit opportunities immediately.
In the stock market, this arbitrage trading is usually done, on behalf of the investor, through high-frequency software that digs out these arbitrage opportunities, and executes the trades for the investor. The property trading companies such as Hedge funds are the most common investors who seek out and make use of these algorithmic opportunities in the stock exchange market.
As mentioned previously, the differences in price for the cryptocurrencies across different markets can be quite astonishing, making ample opportunities for making arbitrage profits. Not only that, but the price differentials also exist within the same country and can be easily utilized without having to go for the extra risk of trading foreign.
Price variation in Cryptocurrency is due to the difference in liquidity, meaning that there is a lack of International price reference standards and nonefficient fund transfer between different exchange markets. The prices might be higher on some exchanges because it is expensive to withdraw fiat for that exchange, thus increasing the demand for crypto as it provides a cheaper vehicle to move your money from the exchange.
A large amount of investment is required to be able to profit from arbitrage trading. The two main parties in the arbitrage crypto world are the hedge funds and the “whales”.
Whales are the very early who adopted the cryptocurrency trading and now have millions in terms of the crypto. They can place big trade so they can make a profit from a difference of $50 in bitcoin. Due to there experience, they are very much familiar with the arbitrage trading strategies and can easily navigate through the markets and exploit the necessary liquidity.
The other, Hedge funds have the resources and capital to execute a strategy and over 225 funds regarding this field to utilize their approach as a part of the investment strategy.
Whether to do Arbitrage trading or not?
Well, this is a very tough question. You see, since you are going to start as a small investor, and taking in account the cryptocurrency exchange rate, t is going to be hard to be able to engage yourself because, in cryptocurrency markets, as you need a large amount of investment in order to generate decent enough profitable revenue. If you plan to start crypto arbitrage with a small investment of thousands of dollars, then, accounting in the trading and withdrawal fees, the profit margin will easily overtake you. For it to be profitable, a bare minimum of $100,000 is required, even so, the profit after that is also quite small.
Considering these points, it is therefore advised for you to find opportunities that provide a trading profit of at least 2 or more percent as anything less can easily be turned back to negative by the fees that have been cost to make the trades.
While the risks in crypto arbitrage trading are considered to be nearly free, but it, in reality, is not a total risk-free strategy. There are always risk of loses from holding large amounts of cryptocurrency in central exchange as a clever strategy to make more profit, but then suddenly you end up losing your money.
The centralized digital exchange is possible to be subject to operational errors and cybersecurity breaches. Laws do not regulate the cryptocurrency in most parts of the world. Therefore, there are little legal resources for the people who lose their digital funds via cybercrime. And only a few exchanges offer insurance for their clients funds against the unexpected loses.
This all translates for this trade to have a potential risk of losing your funds which you have deposited on the exchanges because, if you want to execute the arbitrage strategies efficiently, then you need to have funds sitting on several different exchanges at the same time. So in order to minimize these risk, you need to withdraw your digital and fiat currency when you have finished your exchange for the day, but as previously mentioned this further increases the fees.
For you to even generate a small profit, investors are required to put large amounts of funds at exchanges. Therefore the loss of held funds on the centralized exchange needs to be considered and matched with the earned profits that you have made.
If you want to minimize the losses mentioned above then you need to adopt Arbinox.
Arbinox is a professional trading system for scanning, analyzing and developing strategies, and making arbitrage trade in the crypto exchange markets.
Our system of indicators and analyzers allows you to develop effective channel strategies and allows the user to automate the trading process through the Arbinox Trading Bot to execute a stable profit for you the entire time.
To enable you to extract maximum profit from the arbitration opportunities, we have a set of advanced indicators with a real-time and large history of inter stock spreads that will allow you to develop effective crypto arbitrage trading strategies.
Customized for a separate Quadro Pair (QP), at specified levels of the spread, is our notification system. Connecting Arbinox Telegram-Bot, for quickly receiving signals, in just mere one click.
Our trading system is fully automatized. It has the ability to automatically track trading signals set by specified parameters along with automatic verification of the state of a neutral market position.
We have a very unique system of control and management of stock exchange balances along with the calculation of portfolio income in the system.
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