In the world we live today, they are tons of dollars made in exchange through cryptocurrency transactions.
But unlike the conventional stock exchanges we’re used to, and cryptocurrency comes in different exchanges. It involves various exchangers displaying varied prices for the same cryptocurrency.
Now, if you’re like most people who don’t like to venture into the little risk, Crypto Arbitrage offers you an opportunity to trade another way – “exchanges against each other.”
What is Crypto Arbitrage?
Crypto Arbitrage is a trading technique where you purchase a specific cryptocurrency in one market and sell it instantly on another market but this time around for a higher price.
So, it gives you an avenue to exploit the price difference between two markets to obtain a profit when selling the same cryptocurrency on another platform.
The process is self-explanatory. For example, if Bitcoin is priced at $12,000 and a platform like Binance caps it at $11,800, Crypto Arbitrage allows you to explore the price difference opportunity.
You can buy the Bitcoin at $11800 in Binance and sell it for $12,000 in another market like Coinbase, making $200.
One striking feature of Crypto Arbitrage is speed because these price changes don’t usually last long.
Different types of arbitrage
· Between exchanges
It is perhaps the most common kind of Crypto arbitrage, where you get to buy a cryptocurrency on one market for a lesser price and exchange the same cryptocurrency on another market for the same price.
· Triangular arbitrage
Unlike the other type listed above, triangular arbitrage involves three different cryptocurrency exchanges. You’ll have to implore the difference between the cryptocurrency during an exchange.
In this type of Crypto arbitrage, transfer fees are negligible, posing zero issues.
· Statistical Arbitrage
In this type of crypto Arbitrage, you’ll have to implore quantitative data models to determine the arbitration in different cryptocurrency statistical bot to obtain profits. So, statistical arbitrage is a trade following a mathematical model.
· Decentralized (DeFi) Arbitrage
Not all Crypto Arbitrage have to do with human intervention, and DeFi Arbitrage is a perfect example. It makes use of non-custodial financial protocols during its exchanges.
The Risks of Crypto Arbitrage
This is one of the common risks associated with Crypto arbitrage trading. It becomes the case when you order for a cryptocurrency, but your order becomes larger than what is on the order book.
You’ll end up paying more for the cryptocurrency than you expected, thus blunting out your chances of maximizing profits as intended.
When it comes to Crypto Arbitrage trading, price movement is another risk you’ll have to tackle. You have to take quick advantage of the price changes when there do occur because they usually change within minutes.
The transfer margins between markets are sometimes tight, so it’s a risk that can prevent you from making profits through the exchange, especially when you’re carrying out small number of trades.
Overall, Crypto arbitrage offers an opportunity for less experienced and versatile traders through cryptocurrencies exchange.
Though like the traditional trading method, Crypto arbitrage also comes with some risk, which is why you need to be out alert during each trading if you must make profits.