Bitcoin Forum

This might be a silly (read: newbish) question, but what's stopping someone from buying a few Bitcoins from BTC-E at 87.849 USD per BTC, and then selling them at MtGox for 118.2 USD per BTC to make a profit?

Good luck getting USD in and out of BTC-E.  It's almost impossible.

Can you elaborate please? :)

Nothing. And you got the prices totally wrong. It's about 87 EURO / 1 BTC on BTC-E. If there were such a huge difference, people would have exploited it already.

Well the idea is sound, as the BTC price on BTC-E is always much lower than Gox, however I had some USD at Gox and wanted to get it over to BTC-E, but just couldn't find a reasonable way to do it.  Bitinstant would seem to be the way to go, but they've mysteriously stopped offering BTC-E as a deposit option and seem to refuse to want to explain why.

If you have a way to do it that doesn't gobble up too much in fees, I'm all ears.

Are you sure? I'm currently seeing BTC/USD = 87.849.

https://i.imgur.com/Bmqd4AF.png

Yeah the fees are really what's making me skeptical here. I was wondering what other users think, and if anybody has a more technical reason than "it just doesn't seem like it should work" :).

Good question. What you are thinking of is called arbitrage. It is mostly done by robots. It may involve multi-currency juggling as well (eur-usd-btc, for example).

Obviously, to do this you need at least
- markets with high enough liquidity
- ways of moving fiat between exchanges (and exchanging it in banks in case of mukti-currency arbitrage)
- price differences higher than the total fees you pay
- technical ability to write and maintain arbitrage robots

Ahhh, I could see why this sort of thing would be automated. Thanks for the informative reply!

Of course just as I post this, BTC-E suddenly reflects MtGox. What the heck?

This image is from March 30. The current price is $119/BTC.

That's so odd. For me it's been quoting at lower prices (the same prices, maybe?) for the past few days. Perhaps some sort of caching bug or something...

Trading between exchanges is feasible if there is a big enough spread to overcome any fees(i.e. MtGOX charges 0.6% per transaction).

someone above mentioned LIQUIDITY... meaning there has to be enough people trading in volume to make it work. ABC exchange could be selling BTC @ $80 and you buy 10 BTC. XYZ Exchange is buying BTC @ $100, but they are buying quatities of 0.005 BTC. So you will be waiting a long time to try and sell those 10 BTC and meanwhile the price will begin to change.

The biggest hurdles right now is the ease of moving USD and BTC in and out of accounts and the unpredictable movement of the price... though it only seems to go UP at this point. It is scary to think WHEN is it going to CHANGE????

"What's Stopping Someone From Buying From one Exchange, Selling in Another?"

Nothing :)

Although, as others have mentioned, the high price of coins now has made the fees enough to kill any profit potential.

Back when coins were $4 each, you'd only incur a fee of less than $0.03 per transfer, which means buying at $4 (anywhere) and selling for $5 (anywhere) would make a nice profit. But at $120/coin (at the time of writing this) you will incure a fee of $0.72 per coin per transaction, which means you'd need a gap of more than $1.50 between your buying and selling prices to see any return. It's possible to find a gap that large over time, but not between exchanges with an immediate buy-sell maneuver :)

Shouldn't the BTC/USD price fluctuate more? Going from $4 to $5 is a 25% increase. A 25% increase from $120/BTC would be $150/BTC.

Absolutely nothing (http://bit.ly/MsPr2u)

I've seen differences of $10 CAD between Mt Gox and Virtex in the past week, for periods of up to an hour.

The slow speed of moving things between accounts would make it very difficult to capitalize on that though. I looked into it in some detail.

Arbitrage is a natural and legal practice that can be used in any market.
My question is:
how do we know that the buyer and seller is not the same person?
If BTC is trading at $100 and someone puts in a sell bid for $105, what stops that same person from also being the buyer with a different account?
this practice could be carried out for a long time and artificially drive the price up or down.
Am i missing something?

Exchanges typically charge a few percentage per transaction.

You would need to make the transaction larger than that difference. I think it only works if you keep decreasing the quantity traded each time, until at some point the transaction fees make it no longer worthwhile.

The other issue is that you're relying on other people not trading the exchange rate down at the same time!

The price on btc-e is very frequently a few dollars less than the other exchanges.  Even taking into account deposit and transaction fees, the price difference is often more than the charges.

Right now mtgox is $116 and btc-e is $109 = $7
Charges/transaction fees 3% of $109= $3.27
Profit $7 - $3.27 = $3.73 / unit

There are other factors to take into consideration, such as the risk that the market price might have changed while waiting for the transfer on the other exchange.  This particular risk could be mitigated if you could convince someone on the selling exchange to loan you the coins.  Also, you might have to wait 5 minutes to execute your order on mtgox, which is more risk...

Making a profit off of the price difference between markets is called Arbitrage.  Nothing stops you from doing it, and you can make some coin.  Remember to take into account the transaction fees on each exchange when you do the maths.

It's because people are outbidding each other. They only need to add (subtract) $0.01 to(from) their price to be the most attractive offer. So if 100 people outbid each other by $0.01 each, the price will move $1. People aren't outbidding each other by a percentages, which is why (in general) the movement speed isn't affecte by price (aside from driving more people to try to participate in the bidding war).

I've been thinking about the arbitrage problem for a bit now (please excuse unintentional pun).

It would actually help if people did this, so that the exchanges would (over time) get closer in value to each other.

One additional problem that I've noticed would be the need to keep additional excess funds on hand at each exchange, in order to be able to capitalize on differences.

Right now I'm seeing (CAD$):
Virtex - $136
LibertyBit - $149.99
MyGox - $138.93

So in theory, I could sell at LibertyBit (assuming I had an account with BTC there, or that I could move BTC over quickly enough), and buy at either of the two, and hopefully still make something after transaction fees. I would need to keep fiat currency on hand at all of them though, because there are fees associated with moving money in and out, which would reduce my profit margin too much. I'm not sure that I trust all of these exchanges sufficiently to want to keep large amounts of money there long-term though....

The numbers look attractive, but looking at LibertyBit's page, the last transaction was 54 minutes ago.... and there have only been 6 transactions within the past 4 hours. Doesn't sound like the kind of exchange I'd want to work with...

If you were dealing with $4 bit coins (as I already mentioned!) I'd say take the risk, but when losing one bitcoin means losing $130+ you might want to be more selective  ;)

I wrote an article on my blog (not going to link here, but I'm easy to find online) that looks at this in a bit more detail.

Liquidity on smaller exchanges is definitely one risk factor here.

Not to mention when even the BIG exchange (MtGox) gets DDoS'd and you can't even get to your BTC or money.

Right. You wouldn't execute trades at that point in time though.

The key would be to have two screens open at once - or even better just automate the process, with testing for latency.

One more thing.
Send money from bank to BTC-E, buy bitcoins there, send bitcoins to MtGox, sell there, withdraw money to bank. Repeat.
But withdrawing funds from MtGox takes weeks, isn't it? Now you can make more money just with exchange rate fluctuations. Without freezing money for a long time ;)

Also BTC-E's options for depositing money appear to be shrinking?  I have both USD in an American bank and Euros in a German bank, yet I can't find any way to get money into BTC-E unless I use some russian virtual payment site--none of which take bank transfers  ???

Nothing but you got to do so much hussling that at the end of the day it ain't worth it.

I agree... I am in the US and I finally got a Dwolla account setup and a bank transfer to it cleared after 5 business days (7 calendar days). I am going to transfer it to my MtGOX account, but I was slow in getting them the scan of my ID. I finally did it this weekend and the status message now says, "Your account verification request has been received, and will be reviewed within the next 10 business days. "

HOLY CRAP! 10 business days?! that's 2 weeks from now... *throws hands up in the air*

I have $5,000 I want to put into BitCoins and the only other working alternative I have used is BitInstant and that limits me to $500 per transaction (4% + $3.95 fee) and is limited to $2,000 per day. Not so good for large sums of money.

I've been using virtex in Canada.

Took me about 3-4 days to get setup, verified and to move money into my account. I think you can use it from the US as well.

Also noticed another bit of information... I submitted my ID scan yesterday afternoon and today it says, "Your Position in the Verification Queue 13720."

WTF?  >:(