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Author Topic: Need advice on working between exchanges  (Read 857 times)
bubblesort
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Lex Ad Impios


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March 22, 2013, 07:50:13 PM
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I've been watching the exchanges for a few days on http://bitcoinity.org, and I've noticed that the price on the BTCE exchange is sometimes up to $5 lower than MtGOX.  The gap between MtGOX and bitstamp has grown from time to time as well.  The biggest gap is at bitcoin24.  Right now a BTC is trading for $58 USD on bitcoin24 and it's at $71.50 USD on MtGOX.

I know I'm not the only person to notice this kind of thing, which leads me to wonder why this is happening.  Are there not enough speculators to fill the gap between exchanges?  If not then hell, I'll pick up that free cash.

This is my first experiment with bitcoins.  I have $10 USD I have no problem loosing, just in case I do something wrong on my first try.

Here is the play I plan to execute:

I create a bitcoin wallet on my home PC then buy $10 USD worth of BTC on the bitcoin24 exchange for $58 US per BTC.  I then turn around and immediately sell that BTC on MtGOX for $71.50 US per BTC.  That would get me a return, so I turn around and to back to the BTCE and repeat the steps, reinvesting the original $10 plus the profit the first trade earned me.  I then sell that on MtGOX and repeat the cycle as long as the MtGox price is higher than the BTCE price.  If the transaction speed is fast enough and the spread is enough to cover the transaction costs on these exchanges then I could turn that $10 into $100 in a short amount of time.

There are a couple of things that I think could cause a problem:

1.  Transaction speed.  How fast does money move on these exchanges?
2.  Transaction costs for working with USD.

Now, I know bitcoin is supposed to be transaction cost free and instant, but it looks like these exchanges do take time and have transaction costs when working with USD because USD is an inferior currency online.  Would the speed and costs make this play impossible?  It would take some pretty high fees to eat the gains from an 18% price gap like the one between MtGOX and bitcoin24, especially if I was working with larger trades.

Also, even if this play isn't practical right now... in the future if I noticed an opportunity for this to work, would it make sense to run my wallet off my home PC or would it make more sense to use an account on MtGOX or on BTCE for this kind of play?

EDIT: Crap, sorry I didn't notice the price from bitcoin24 is in Euros.  The question still stands, though.  Even with small differences in the exchange rate between exchanges, you can still make a lot of money working between, say, the BTCE and MtGOX.

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enygma
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March 22, 2013, 07:58:26 PM
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Here is a good place to start:

http://bitcoinmagazine.com/btc-trader-bitcoin-arbitrage-made-easy/

Basically you are wanting to try and arbitrage on the markets. It is easy enough to do it on the BTC end, buy your BTC on bitcoin24 and sell them on MtGox. Question is, do you have the time to get money onto BTC24 before someone else tries to arbitrage a more significant amount? Trying to arbitrage on the fiat currency side of things has always been the more difficult option as the main options tend to be limited to how you are able to get fiat currency out of one exchange, let alone directly to another. This means that methods are exchange specific.

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March 22, 2013, 07:59:48 PM
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You are looking at euros @ 58, not dollars.

The only effective way to do arbitrage is to have BTC and USD on both exchanges so you can execute simultaneous trades. If you use up your reserve of any currency, you are out of the game until you can fund or transfer money (hours for BTC, days for $s) It is also not as simple as just looking at the last price, there must be book orders you can sell into. You must also consider the trading fees - even after fees, why make a trade when the exchanges make more than you on it?

If you have $10 USD, it would be easier to buy bitcoins and sell them when the value would get you $11.

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March 22, 2013, 08:07:03 PM
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It all comes down to risk vs reward vs effort.

With $10 the fees are going to kill you.  Most exchanges have fees on cashing out and bank wire is pretty cheap on large sums ($5K+) but prohibitive on small sums.  Then you have to consider the lag on moving fiat.

Most fiat transfer methods are slow.  So you have $10 net worth.  You buy BTC on one exchange, sell them on another and make say 5%.  Sweet you have $10.50.  However cashing out of MtGox, moving the fiat to your bank account and then from your bank account to BTC-e through a bunch of middle men may take a week.

Awesome you just landed a job which pays $0.50 per week!  Now with $10,000 you might make $500 per week however most arbitrage opportunities aren't that deep so you may make less.  Even if they are if an exchange closes up well there goes 20 weeks worth of income. Sometimes MtGox withdraws get lagged weeks (or even months) so if you only have $10,000 capital and it is all lagged well your income goes to $0.00.  Still with enough cash (willing to risk it all disapears one day when the operators pull a Bitcoinica) you can make the spread bug it is going to take a LOT of capital to keep the exchanges and pipelines "loaded".
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March 22, 2013, 10:24:22 PM
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Thanks for the link  Smiley

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March 22, 2013, 11:29:13 PM
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Totally agree with what's been said here. Of all the ways of making extra coins, arbitrage between exchanges seems to be one of the least effective in terms of time and capital tied up. If Bitinstant and BTC-e could get it together to have a two exchange between there and Mt Gox then the disparity would disappear very quickly, I'm sure.

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bubblesort
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March 23, 2013, 05:16:58 PM
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Thanks for the advice!  Especially the link to the bitcoin magazine article about BTC Trader.  I also found a program called BTC Instant that looks promising.

I think this is possible to make this work but it will take some time and research to do it right.  I will probably have to write some code to move things as fast as possible, but even then slippage could kill me.  At the very least I'll probably write something simple in Access or VB to keep track of fees for all the exchanges I want to work between.

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March 24, 2013, 12:28:30 AM
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Thanks for the advice!  Especially the link to the bitcoin magazine article about BTC Trader.  I also found a program called BTC Instant that looks promising.

I think this is possible to make this work but it will take some time and research to do it right.  I will probably have to write some code to move things as fast as possible, but even then slippage could kill me.  At the very least I'll probably write something simple in Access or VB to keep track of fees for all the exchanges I want to work between.

We're working on this at Bots Of Bitcoin (all Python), but the arbitrage bots aren't there yet, purely because of the inter-exchange fiat issue. They work as far as it goes, but you end up with a heap of Bitcoins at BTC-e and a heap of dollars at Mt Gox/Bitstamp.

The Bollinger Bandits are making a killing in this volatility though. There's more than one successful strategy out there.

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April 13, 2013, 02:11:01 AM
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I've been watching the exchanges for a few days on http://bitcoinity.org, and I've noticed that the price on the BTCE exchange is sometimes up to $5 lower than MtGOX.

I think the arbitrage between MtGox and BTCE is usually illusory and due to the fact BTCE charges a percentage fee on fiat deposits. If an exchange charges a 5% deposit fee for fiat then I would expect the BTC price to be depressed 5% there.

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