How Exactly Does Crypto Arbitrage Trading Work? (guide)

[its-a-me-mario]

I thought this article would be of interest to the traders here. I've included an excerpt but the full guide can be found here: https://www.cryptoglobe.com/latest/2019/12/how-exactly-does-crypto-arbitrage-trading-work/


You may have heard of people mention arbitrage trading from time to time, but do you really understand how it works? Let’s dive into the different approaches to arbitrage, and how it works when trading crypto.

What Is Arbitrage
Arbitrage is defined as “the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.” In simpler terms, it means that a trader purchases some asset (for example BTC) then sells it for a higher price on a different exchange or trade pair. There are a few different ways to do this, each with their own upsides and downsides.


Why Are There Price Differences?
In order to profit off of arbitrage there needs to be a difference in price across exchanges or markets. For example, 1 BTC might be sold for $8,000 on one exchange and $8,100 on another. Why is there a price difference? This is because exchanges don’t have a set price for any asset, they maintain an order book which is a list of all of the prices that other people are willing to buy or sell that asset (because they have open buy or sell orders that are waiting to be filled). When you want to buy BTC on an exchange, you will buy it for the lowest price that someone is willing to sell it for, say $8,000. If there is nobody else looking to sell BTC for at a rate of $8,000, then the next lowest selling price will be used. That would depend on what other people have opened orders for, it might be $8,000.10, or $8005. Due to this mechanism, prices are always changing.

How Can I Find Price Differences?
Finding a big price differences, or “spread”, that you can take advantage of for profit can be hard. You need to be constantly watching real-time ticker (price) data across a number of exchanges, and doing the math to figure out how big the spread is. A spread of 0.10% probably won’t be profitable due to exchange trading fees, but a spread of 3% or so could be used to easily make a profit.

In reality, you’ll want to use some type of tool or custom spreadsheet to find spreads in real-time. These are often called a “crypto arbitrage scanner” or something similar. Profitable opportunities sometimes only exist for a short amount of time so having assistance in finding these spreads is crucial. There are a number of options to help with this, such as Coygo or ArbiTool. Below is an example of an arbitrage scanner.

[DimitrisLodirogas]

Arbitrage can be tough nowadays and much harder to profit with than in previous year. Here's a link to one of my favourites sites and it also offers arbitrage tool/indicator with explanations: https://platform.newscrypto.io/arbitrage hope it helps!

[pooya87]

the main problem isn't in finding price differences because in this market specially when altcoins are involved there are a lot of arbitrage opportunities at any second. but the problem is executing orders at these different places since there are a lot of problems in each platform including their wallets being out of sync, out of balance and the most common thing the withdrawal/deposits taking way too long to complete specially since some altcoins require very huge number of confirmation.

[Wexnident]

OP, you should probably provide the disadvantages (current ones) of Arbitrage trading. Yes it is a type of trading, but it is mostly avoided or stopped now because of the difficulty of actually gaining profit from it. Just the fees of each exchange can cause you headaches already, and most of the time, the price differences of exchanges are so small already that it isn't even enough to pay for the fees of the exchanges. Plus, the time it takes for these transactions to occur, cause you'd want to make as much profit as possible, so you'd have to go for the cheapest fees in the transaction right?

[panganib999]

My take on this is that, Crypto Arbitrage worked... In the past. It doesn't work anymore and if it does, the profit you'd actually get is so minimal it isn't really worth the effort anymore. Like, Arbitrage trading is a good idea and all, but ever since exchanges have popped up one after another, they pretty much coordinated with the market changes, much so that the differences in the market prices are really really small, like, even the fee for a taxi cab might be more expensive.

Below is an example of an arbitrage scanner.

Below is where exactly?

[zeze18]

Arbitrage can be tough nowadays and much harder to profit with than in previous year. Here's a link to one of my favourites sites and it also offers arbitrage tool/indicator with explanations: https://platform.newscrypto.io/arbitrage hope it helps!

I think arbitrage is not profitable anymore because of there are many websites just like you mentioned, people are easily monitor all coins from many exchanges so they won't make big gap between exchanges

[teosanru]

I am Cryptocurrency trader but have never tried arbitrage. Just tell me one thing is arbitra really a good option considering highly volatile markets in crypto and high withdrawal fees too. Moreover I have heard that market always discounts itself so I think the opportunity which you are looking at isn't really an opportunity it's just visible because of some high withdrawal fees involved otherwise everyone else would do it and market would discount itself once again. Even if these differences exist how is it really possible to switch funds between two exchanges in limited time. It takes some time to process funds on blocks. I think arbitrage isn't really worth the work it involves.

[MI6]

Correct me if i am wrong, but now trader is increased a lot and chance to get arbitrage coin is less for now. Maybe who can really do arbitrage, for me is who lucky get the coin first, and then can arbitrage it. Because if late, usually something like much spread between exchanges  will already known by a lot of traders and there is only short time it can stay like that.

[Darooghe]

Arbitrage trading is not really profitable anymore because most exchanges have technology in place to prevent it. they will stop crediting/confirming deposits or pause trading for that coin. I’ve witnessed this first-hand with Binance, Gate.io, Kraken, Hitbtc and KuCoin. Of course, that’s pertaining to large price differences. they don’t do this for small price differences, but you’ll have to buy a shit ton to make it worth your while.

[piebeyb]

I thought this article would be of interest to the traders here. I've included an excerpt but the full guide can be found here: https://www.cryptoglobe.com/latest/2019/12/how-exactly-does-crypto-arbitrage-trading-work/

if the difference is very thin I think this does not guarantee for traders who have small capital can benefit, I don't really like looking for thin profits like this, but if there really is a moment where the price of bitcoin has a more favorable price range it is an interesting moment. unfortunately at the moment it's not profitable to price arbitrage, this article is pretty decent to read

[pawanjain]

According to me, arbitraging is a thing of the past now. These days traders have become more aware now and so there are rarely any opportunities left for arbitraging.
Even if a lucky trader finds a place to arbitrage, then the duration of arbitraging would be really short and hence most traders don't get in at the right time.
It's good to know how arbitraging works but it's kind of becoming an old thing now.

[BrewMaster]

According to me, arbitraging is a thing of the past now. These days traders have become more aware now and so there are rarely any opportunities left for arbitraging.
Even if a lucky trader finds a place to arbitrage, then the duration of arbitraging would be really short and hence most traders don't get in at the right time.
It's good to know how arbitraging works but it's kind of becoming an old thing now.

another problem that has turned people away from performing arbitrage trading is lack of alternative exchanges for altcoin trading that they can easily use and trust.
right now there is only binance that remains big and has not YET scammed its users. the rest have either turned into scams like yobit, bittrex, poloniex or are bad without volume that makes them unusable.

[gentlemand]

Why Are There Price Differences?

This is something I see newcomers balls up all the time.

When there's a glaring price difference they never seem to realise that it's almost always because something is fucked with the exchange they're getting excited about. That usually means you can't deposit or withdraw from the skewed market or it's totally inaccessible to them a la South Korea.

They seem to act like they've uncovered some special sauce that no one else has cottoned on to. In reality if it were possible to milk it it would be sucked dry in seconds.

I hope they figure that out before wasting their time on it.

[boris singer]

Arbitrage tools can see significant differences, they can even exploit volumes in great detail and make exchanges choose to close deposit and withdrawal options for more than one week to prevent manipulation, for example: snx coins in Bittrex which still have strong volumes up to now.

large price difference ratios rarely occur on top coins, at most only 2%, not very meaningful when using small capital, but this is still one of the strategies in arbitrage.