Bitcoin Forum

I've noticed that their are small inconsistencies with Bitcoin to USD exchanges, and how the value for BTC appears to be different.

What if, I were to buy 1 Bitcoin from BTC-e for $637.00 and then sell it again on Bitstamp for $643.85?
To me, it looks like it could be pulled off, but how come I've never heard of "exchange jumpers"? People who buy cryptos on one exchange for the lowest price possible and then re-sell on a different exchange, reaping the profits of the small inconsistencies? Is it too cumbersome or are the profits simply not worth it? Why do these price inconsistencies exist on exchanges?  ???

Yep, it is called arbitrage:

In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.
When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit after transaction costs.
For instance, an arbitrage is present when there is the opportunity to instantaneously buy low and sell high.

In principle and in academic use, an arbitrage is risk-free; in common use, as in statistical arbitrage, it may refer to expected profit, though losses may occur, and in practice, there are always risks in arbitrage, some minor (such as fluctuation of prices decreasing profit margins), some major (such as devaluation of a currency or derivative).
In academic use, an arbitrage involves taking advantage of differences in price of a single asset or identical cash-flows; in common use, it is also used to refer to differences between similar assets (relative value or convergence trades), as in merger arbitrage.

There was a scam website doing this. btc-arbs.com or .net I forget the exact website. But think about this. You pull out of btc-e you pay a fee then you transfer into bitstamp you pay a fee. In between you also have pay fee for conversion to fiat. Plus the process of pull and put will take around 60 mins or so on the network. Can you be sure the price difference will still be there? and you can cover all the mentioned fees?

Thank you DolanDuck and dmz241 ;)
What if I found a crypto with a worthwhile gap?
And is Arbitrage bad for the cryptoconomy?

BTC moves too quick for real arbitrage (e.g. buy BTC on BTC-E, sell on Bitstamp, withdraw fiat and re-deposit on BTC-E). But since the spread narrows and widens, you can take advantage by, for instance, buying on BTC-E, selling on Bitstamp, and waiting for the spread to close before buying and sending back to BTC-E.

Don't forget to take the deposit fees and withdrawal fees into consideration.


For bitstamp, international wire transfer in USD costs 0.1% (min $15).
For btc-e, international wire transfer in USD costs 1% (min $20).

This is just one difference, and there are many more differences.

It is a .com, and looks like people have lost over 230 btc there.
https://bitcointalk.org/index.php?topic=474787.msg7127947#msg7127947

If there is still a profit after considering all the fees and you have checked that both exchanges work, I don't see any problem.


Nope.
Arbitrage exists in other markets like forex, and it helps reduce price gap and stabilize the markets.

This is much easier with your altcoin(s) of choice than with bitcoins, but yes you can, yes it happens all the time.  The bitcoin market is the most well developed so it offers few opportunities but the altcoin markets since they are so thin offer lots of chances.

Good Luck!

Thank you for all the awesome answers, they all did a great job of explaining things. My last question related to arbitrage is this: Does anybody know a trader who's actually been successful pulling it off with cryptocurrencies?

Found the page http://bitcoin-analytics.com/#arbitrage with google search for you.
It shows the price differences for more than 10 different exchanges (in real-time after login, 6 hrs delay otherwise).

I think most traders will exploit an arbitrage situation occasionally (even I, not being a trader, could make some mBTC from an arbitrage opportunity within Ripple some time ago), but it probably does not make much sense to concentrate on arbitrage exclusively.

Onkel Paul

Thanks, Sir!  :D . It is a good statement for making profit with BTC .
Kindly,
       Muhammed Zakhir

Getting harder to exploit market inefficiency.

I would agree that it doesn't make sense to concentrate on arbitrage exclusively, certainly with bitcoin. But I do watch the divergence between BTCE and Stamp, and exploit it sometimes. :P

I dont really bother with arbitrage. BTC is so volatile that it just seems more practical to ride the waves for much more profit than to pick up 1% here and there on arbitrage. But I do realize that arbitrage is pretty much guaranteed money, so there's that.

I think a lot of people actually use the arbitrage to get a nice profit.  If you're doing it enough, even at 2% you can make a lot.  I think your best bet though is not to try it between the 2 major exchanges.  I would try to buy some cheaper on something like localbitcoins and then you can sell on exchange or some other services for more and get a bigger price difference, like 10% even I think.

Better yet, on Localbitcoins, if you build up a reputation as a buyer and seller, you can buy/sell with a fat (5-7%) premium vs. exchange prices.

Arbitrage is profitable if you already have fiat and bitcoin in the exchanges, so you can buy and sell at the same instant. If you send funds when you spot a margin, it is already too late. The current margin between exchanges are too small to make any arbitrage worthwhile.

I'll remember not to focus too much on make money from arbitrage ;D
Now that PolarPoint mentioned the fact you should have fiat and cryptocurrency ready to go, I kinda wish all the crypto exchanges would use one centralized user wallet so you wouldn't have to distribute specified portions of your crypto or fiat on different exchanges.

What arbitage will tend to do is flatten out the price across the markets and make it a little less volatile, just a little though.

Well arbitrage its not so easy, its hard to put money into almost all exhcnages and if you move huge amounts of money i think your accounts can be put on hold, in resume you need to have good bots and programming skills and good banking or money transfer systems.

Yes this is possible however you do need to take into consideration the credit risk you are taking. In the event that one of the exchanges goes belly up then you would lose all of the BTC/fiat that you have deposited with them.

Another issue is that you cannot easily transfer BTC from exchange to exchange. If for example you wanted to buy BTC at exchange 1 and sell it on exchange 2 then pocket the difference you would not be able to do this instantly. You would first have to deposit fiat at exchange 1, buy BTC, withdraw BTC to deposit address at exchange 2, wait for generally 6 confirmations, then sell BTC at exchange 2. During this time you will be risking that the price of BTC will fall.

I am aware that Bitcoin does have a long transaction time and the risks involved. I am also aware that newer cryptos could potentially have shorter transaction times and wider spread between exchange values enablong a much more profitable arbitrage scheme.

Feel free to use our ANXPRO (http://bit.ly/anxprobyt) platform for arbitrage today, our price is currently a bit higher than Bitstamp, and we charge fees as low as 0.05%, and we also support SEPA withdrawals.

Thanks for telling me about anxpro, byt411. Love the UI, looks a lot better then some of the other exchanges I've seen. I'll keep Anxpro at the back of my mind, as of now, I'm looking at some other altcoins to arbitrage.

Our Platform (http://bit.ly/anxprobyt) supports many fiat currencies and a few cryptocurrencies, so you might want to check that out! ;)

I don't know much about this, but I always figured the fees to withdaw and deposit and the entie process etc etc sort of evens out.
otheriwse everyone would do it... err right lol ??

Not really, fees don't even out, for example, at ANXPRO (http://bit.ly/anxprobyt) our fees are as low as 0.05%, so you could take advantage of that.
It just requires a lot of money to make a small profit. If you try and arbitrage with like 0.001BTC, you wouldn't make much.

Arbitrage can work if you have:

1 A lot of money
2 Coins on many different exchanges
3 A good arbitrage bot

Still the profit won't be high.

You can do this however there are a number of problems with this strategy. First of all I would say that there are a lot of scams out there that promise to allow you to earn unrealistic returns "risk free" as this is simply not possible and will likely simply steal your BTC.

The main problem with attempting to do this is the fact that you need to withdraw funds from your exchanges that you sell on and deposit your fiat funds on exchanges that you buy on. Generally most exchanges will only send funds to a bank account listed in your name and will only send funds to a bank account in your name. In other words you need to have a lot of money going into and out of your bank account, this will raise red flags at your bank as it may look like you are kiting funds and/or laundering money.

The next problem is doing the opposite, sending BTC from exchange to exchange. Most exchanges will require 6 confirmations prior to allowing you to trade with BTC and this will cause a delay from the time you buy your BTC to the time you sell it, creating the possibility that the price will fall, eating away at your profits or possibly creating losses.