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Author Topic: Pricing and arbitrage: what are the requirements?  (Read 98 times)
monsterer2
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January 26, 2018, 01:28:36 PM
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 #1

Hello all,

I've been mulling over in my head what the requirements are for inter-exchange arbitrage to affect the price of a particular market.

For example, if you have two exchanges, with the same market structure, both accepting deposits and withdrawals in base and quote currencies, it seems arbitrage is clearly possible, should a pricing discrepancy present itself.

But what happens if the market structure is different between exchanges?

Say, exchange A has a 'standard' LTC/BTC market where you sell 1 BTC and get 0.1 LTC instantly, but exchange B, is a CFD exchange trading LTC/BTC where you go short 1 BTC and then have to close the trade at a later point?

Is arbitrage still possible?

Cheers, Paul.

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January 26, 2018, 06:57:41 PM
 #2

Hello all,

I've been mulling over in my head what the requirements are for inter-exchange arbitrage to affect the price of a particular market.

For example, if you have two exchanges, with the same market structure, both accepting deposits and withdrawals in base and quote currencies, it seems arbitrage is clearly possible, should a pricing discrepancy present itself.

But what happens if the market structure is different between exchanges?

Say, exchange A has a 'standard' LTC/BTC market where you sell 1 BTC and get 0.1 LTC instantly, but exchange B, is a CFD exchange trading LTC/BTC where you go short 1 BTC and then have to close the trade at a later point?

Is arbitrage still possible?

Cheers, Paul.

At that point if you are closing a trade later than arbitrage becomes a much riskier game, in fact it's not too dissimilar to speculation at that point, the difference being you are speculating on the price going either one way or remaining the same, if it goes the opposite way you'll lose money and that's not really the idea behind arbitrage. The simple premise being you are guaranteeing a profit by trading both ways

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January 26, 2018, 07:25:57 PM
 #3

Hello all,

I've been mulling over in my head what the requirements are for inter-exchange arbitrage to affect the price of a particular market.

For example, if you have two exchanges, with the same market structure, both accepting deposits and withdrawals in base and quote currencies, it seems arbitrage is clearly possible, should a pricing discrepancy present itself.

But what happens if the market structure is different between exchanges?

Say, exchange A has a 'standard' LTC/BTC market where you sell 1 BTC and get 0.1 LTC instantly, but exchange B, is a CFD exchange trading LTC/BTC where you go short 1 BTC and then have to close the trade at a later point?

Is arbitrage still possible?

Cheers, Paul.


it has already been discussed millions of times across this forum
arbitrage is no more profitable; ship has already sailed months / year ago
there are now too many bots trading these opportunities, and the spreads are negative

there are too many reasons why the prices differences you think to see on coinmarketcap or whatever support you use, won't work

my advice to you is to stay away from that business for now unless you're ready to suffer losses







squatz1
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January 26, 2018, 09:21:30 PM
 #4

Arbitrage isn't something which is easy to get into, nor is it something which I would want to get into due to the amount of volatility which is present in the markeplace right now plus high price of TX fees which is going to kill the ability to due arbs, without a substantial amount of money being moved at a time.

Plus it's not easy to get onto the exchanges where the real money can be made under the right cicumstances - which is having someone who is verified on one of the exchanges (living in korea) and able to buy massive amounts of bitcoin and move it on a daily basis. So it's not as easy as setting up two accounts and buying, transfering, selling -- if it was this easy everyone would be doing it and the profit margins would be much lower.

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bill gator
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January 26, 2018, 11:42:54 PM
 #5

arbitrage to affect the price of a particular market.
it seems arbitrage is clearly possible.

But what happens if the market structure is different between exchanges?

Is arbitrage still possible?

There is not enough information provided in your question to provide you with a definitive answer.
Arbitrage may be possible one second and not possible the next given the same exchanges, or as you said inter-exchange. It is a dynamic market and therefore the answer remains dynamic; you have to find your niche or your "reliable" method if you want to arbitrage. Anything that would be publicly known would not be worth doing or would become non-profitable extremely quickly.

The market structure does not matter; the strike/price/numbers that you input and output are going to be what matters. Write out everything you plan to do, the prices, the fees, etc. and see if you come out positive, or if you're daring and confident you can just go for it and make the trades/purchases and see if you end up with more money. Either way, you will have your answer, but without more information, criteria and parameters there is no way to respond to your question, except with more questions.

monsterer2
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January 27, 2018, 07:11:51 AM
 #6

The market structure does not matter; the strike/price/numbers that you input and output are going to be what matters. Write out everything you plan to do, the prices, the fees, etc. and see if you come out positive, or if you're daring and confident you can just go for it and make the trades/purchases and see if you end up with more money. Either way, you will have your answer, but without more information, criteria and parameters there is no way to respond to your question, except with more questions.

For example, though - if you took BTC/USD on bitmex (which doesn't support USD deposits/withdrawals, instead uses a price pegging system), and BTC/USD on bitfinex, which uses USDT, arbitrage is not possible, because there's no way to exchange USD between exchanges, so market structure does matter in this case.

I'm just wondering what the constraints are? Is it simply the ability to deposit/withdraw the base/quote currencies on both exchanges?

EthanB
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January 27, 2018, 10:00:44 PM
 #7

For example, though - if you took BTC/USD on bitmex (which doesn't support USD deposits/withdrawals, instead uses a price pegging system), and BTC/USD on bitfinex, which uses USDT, arbitrage is not possible, because there's no way to exchange USD between exchanges, so market structure does matter in this case.

I'm just wondering what the constraints are? Is it simply the ability to deposit/withdraw the base/quote currencies on both exchanges?

The only constraints that are there are the constraints you are putting on yourself and what your goal happens to be. For example, you are assuming that in order to arbitrage you must move your coin from one exchange to another - you would be better served to simply worry about the outcome. If you buy low and sell high, why does it matter if you combine the coin? You have ownership of the low cost coin and you sold the higher cost coin.You do not need to exchange USD or BTC between exchanges, simply having more BTC or USD in total, accross all platforms should be your goal. Collectivize your portfolio, broaden it and diversify, do not try to lump it all in one place as this is where you are losing profit.
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January 27, 2018, 10:13:06 PM
 #8

I've been mulling over in my head what the requirements are for inter-exchange arbitrage to affect the price of a particular market.

This is a good question.

First, the deposit or withdrawal parameters are not relevant for identifying an arbitrage opportunity. The buy or sell price is locked in at the time you commit (click) to the order, you do not have to wait for the transaction/trade to settle to know what your buy/sell price is.

Second, you need to establish a foundation exchange to serve as you base price - let's say it's Coinbase in the US. Then you compare other exchanges to the price at Coinbase to identify your arbitrage opportunity. If you live in the US, Coinbase is probably the easiest channel for converting USD to Bitcoin and vice versa, hence my call to use Coinbase in this example.

Third, what you also need to do is have funds in the exchange where you believe arbitrage may occur in a currency OTHER than Bitcoin (or the crypto you're seeking arbitrage in). If not, then you won't be able to realize the arbitrage price if you're trading bitcoin for bitcoin. Make sense? I can explain this point further if needed.

monsterer2
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January 28, 2018, 10:12:47 AM
 #9

For example, you are assuming that in order to arbitrage you must move your coin from one exchange to another - you would be better served to simply worry about the outcome. If you buy low and sell high, why does it matter if you combine the coin?

Indeed. But you must, at some point, withdraw both currencies from an exchange in order to balance your overall inventories... So if you can never withdraw one side, I fail to see how you can arbitrage?

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January 28, 2018, 10:37:19 AM
 #10

Say, exchange A has a 'standard' LTC/BTC market where you sell 1 BTC and get 0.1 LTC instantly, but exchange B, is a CFD exchange trading LTC/BTC where you go short 1 BTC and then have to close the trade at a later point?

don't make arbitrage more complicated that it is. getting Contract for difference involved in the process makes things impossible because you need to first act fast and get it all filled and second have to account for prices, wasted time, fees,...

For example, though - if you took BTC/USD on bitmex (which doesn't support USD deposits/withdrawals, instead uses a price pegging system), and BTC/USD on bitfinex, which uses USDT, arbitrage is not possible, because there's no way to exchange USD between exchanges, so market structure does matter in this case.

I'm just wondering what the constraints are? Is it simply the ability to deposit/withdraw the base/quote currencies on both exchanges?

you are more on track here.
you can take a more complicated route in order to perform arbitrage but more complication means harder to perform and higher risk and possibly even more wasted time all contributing to less profit or even loss.

here is how you could do it.
lets say bitcoin is worth higher in bitmex. your method of arbitrage means you sell BTC there and then transfer the "money" to the other exchange. well you don't have to use USD to transfer money! you can do it with USDT, XRP, LTC, even DOGE. but prices of these need to be stable. so you sell BTC on bitmex to one of these, transfer it to the other exchange and buy bitcoin with it there. Wink














 

 

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Maveth13
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January 29, 2018, 12:56:58 PM
 #11

The example detail is a bit confusing. If I understand correctly, you want to buy at an exchange with low rate, and sell at another exchange for a higher rate but the trade closes at a later date. That doesn't seem like a reasonable way to do arbitrage. The waiting part of your trade kills the idea of an arbitrage.
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January 29, 2018, 09:41:02 PM
 #12

In order to make albitraj, it is necessary to keep track of price differences between stock exchanges continuously and to make profits by making very fast transactions and exchanges between stock exchanges. Albitraj is very risky and does not guarantee earnings. Because fast traders close the gap in a very short time.



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monsterer2
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February 01, 2018, 08:24:52 AM
 #13

The example detail is a bit confusing. If I understand correctly, you want to buy at an exchange with low rate, and sell at another exchange for a higher rate but the trade closes at a later date. That doesn't seem like a reasonable way to do arbitrage. The waiting part of your trade kills the idea of an arbitrage.

This is what I was thinking.

Note to other readers: I wasn't asking for conditions when arbitrage is profitable, only when its physically possible.

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February 02, 2018, 12:15:06 PM
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Indeed. But you must, at some point, withdraw both currencies from an exchange in order to balance your overall inventories... So if you can never withdraw one side, I fail to see how you can arbitrage?

You must withdraw them at some point, or transfer them to another exchange or in some tangible way retrieve your earnings. This does not mean that you must acquire them in USDT or whatever else though, you can take it as it comes; Make it work with the rules and regulations that are present on both exchanges.

Arbitrage is much harder if you simply go about it straightforward and head-on. This is what everyone else is doing; if you can find a way to make use of two different currencies, rather than try to consolidate them and eat more fees, you might just have a better chance. You have to think outside the box. You may not be able to withdraw the one side as you'd like, but does it offer another option to retrieve your funds, and if not then why are you there in the first place?
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