Bitcoin exchanger loopholes

[bitcointester0]

What do you think about this : http://bitcointester.wordpress.com/2013/04/24/bitcoin-exchanger-loopholes/

[tempestb]

Let me know if you make a million dollars doing this.

[DannyHamilton]

It's called "Arbitrage" and it is why the various currency exchanges tend to have similar prices.  Whenever prices get too different between any two or more exchanges, an arbitrage opportunity exists.  Some people take advantage of the arbitrage opportunity. By buying the bitcoins at the exchange where the price is too low, they drive the price up. By selling the bitcoins at the exchange where the price is too high, they drive the price down.  This occurs until the price difference is no longer large enough to cover the cost of the fees and the risk of the price moving while you wait for your funds to transfer between exchanges.

[Bungeegum]

It's called "Arbitrage" and it is why the various currency exchanges tend to have similar prices.  Whenever prices get too different between any two or more exchanges, an arbitrage opportunity exists.  Some people take advantage of the arbitrage opportunity. By buying the bitcoins at the exchange where the price is too low, they drive the price up. By selling the bitcoins at the exchange where the price is too high, they drive the price down.  This occurs until the price difference is no longer large enough to cover the cost of the fees and the risk of the price moving while you wait for your funds to transfer between exchanges.

Thank you for the explanation!   

[slacker]

You can't make unlimited amount of money because there is no enough liquidity on the market. If you buy big amount (for example - 1000 BTC), the price for the first 100 bitcoins will be low, but for the second 900 will be high - probably higher than price on the second exchanger.

If you sell 1000 BTC - the price will be good for the first 100 bitcoins, but will go down for the other 900 - therefore you will not make a profit.

If you make small transactions - the bank fees will eat your profit. For example, bank fee for $1000 SWIFT wire transfer is $60 (with "OUR" clause) + $10 (very optimistic!) bank correspondence fee + "receiving fee" at the receiving bank. This is over 7% of the transferred amount! You will need to pay this bank fee twice - it means that your loss will be about 14% (because you first need to transfer money from the second exchanger to your bank account, and then transfer the same amount from your bank account to the first exchanger).

I wrote about banking fees on this topic: Why SWIFT bank transfers sucks and correspondent bank fees are legal theft.

[illusiveman]

Just throwing it out there but me and my team are about to release a trading platform that will allow you to take advantage of these arbitrage opportunities. We will also include many more tools like stop loss and positions in general. Its kind of like a meta exchange that works across multiple exchange platforms to get you the best price.

Check out www.crypto.st and signup for our beta. I'd love to get feed back from the community on it  

[Malawi]

You can't make unlimited amount of money because there is no enough liquidity on the market. If you buy big amount (for example - 1000 BTC), the price for the first 100 bitcoins will be low, but for the second 900 will be high - probably higher than price on the second exchanger.

If you sell 1000 BTC - the price will be good for the first 100 bitcoins, but will go down for the other 900 - therefore you will not make a profit.

If you make small transactions - the bank fees will eat your profit. For example, bank fee for $1000 SWIFT wire transfer is $60 (with "OUR" clause) + $10 (very optimistic!) bank correspondence fee + "receiving fee" at the receiving bank. This is over 7% of the transferred amount! You will need to pay this bank fee twice - it means that your loss will be about 14% (because you first need to transfer money from the second exchanger to your bank account, and then transfer the same amount from your bank account to the first exchanger).

I wrote about banking fees on this topic: Why SWIFT bank transfers sucks and correspondent bank fees are legal theft.

You also have to take into considderation that although BTC transfer is quick and easy, SWIFT happens at about the same speed as a car.

[shamoons]

Just throwing it out there but me and my team are about to release a trading platform that will allow you to take advantage of these arbitrage opportunities. We will also include many more tools like stop loss and positions in general. Its kind of like a meta exchange that works across multiple exchange platforms to get you the best price.

Check out www.crypto.st and signup for our beta. I'd love to get feed back from the community on it  

To illusiveman's point, I'm also working on the crypto street bitcoin exchange, and you can get in touch with us at support@crypto.st or hit me up on twitter @shamoons.

[ameen3]

I'm trying to put together an arbitrage bot as we speak, I'll let you know if I make a million dollars.  Couple hundred a month is more likely. 

[almonds99]

Arbitrage can definitely be used to make money,
but as others have pointed out, it's the illiquid market in BTC that makes it difficult.
Also, the varying speeds of transfers, even for BTC, and the highly volatile nature of Bitcoin makes it definitely not zero risk.
I'm not saying you can't make money, so please don't flame,
but for sure, it is not 100% risk free.
And, anyone who identifies a virtually risk free arbitrage, if they do it with enough money, it will close the gap of the arbitrage, so it will only be useful for a limited time.

[compota334]

interesting...

[Majormax]

In any market, the key issue is volume, even above price. Whatever the prices of your arbitrage trade, you will not be able to fill the volume on an ongoing basis...
This is explained in other replies, but in a less succinct way.