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Author Topic: Bitcoin Exchange Arbitrage Opportunities  (Read 5941 times)
dissipate
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May 15, 2011, 06:20:43 PM
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Has anyone explored or engaged in arbitrage across different Bitcoin exchanges? Suppose on Bitcoin exchange A, you can sell your BTC for $5.50, but on Bitcoin exchange B, you can buy BTC for $5.30 each. So you buy up all the BTC you can on exchange B, transfer them to exchange A and sell them all for instant profit. The problem is what about the confirmation time? The opportunity could dry up quick in the time it takes to transfer the BTC to exchange A. Perhaps some arrangement could be made with someone who already has BTC on exchange A?
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ribuck
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May 15, 2011, 09:09:00 PM
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The price differences between the various exchanges can be quite big, so there's certainly an arbitrage opportunity. But the potential for profit is not as great as it may seem at first glance.

Apart from MtGox, the exchanges have very low volume. Usually you can't buy or sell many coins at these smaller exchanges without moving the price a lot. So the profit potential of arbitrage is not that high.
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May 15, 2011, 09:37:03 PM
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As soon as the other exchanges become more liquid there will be more opportunities.  I am not sure about all of the exchanges but most of them do not allow money to move BETWEEN members accounts.  There are reasons for this of course, but because GOX allows money to move between members (in USD) the site becomes even more liquid. 

Dwolla in other exchanges will make the more liquid as well. 

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May 15, 2011, 09:39:52 PM
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What would be really cool is if all the exchanges got together and figured out a way to route orders between each other. So for example, I could submit an order on Mt Gox and automatically have it execute on another exchange. However, I feel this is a really far fetched dream since it requires quite a bit of cooperation amongst the exchanges

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May 15, 2011, 09:55:04 PM
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The price differences between the various exchanges can be quite big, so there's certainly an arbitrage opportunity. But the potential for profit is not as great as it may seem at first glance.

Apart from MtGox, the exchanges have very low volume. Usually you can't buy or sell many coins at these smaller exchanges without moving the price a lot. So the profit potential of arbitrage is not that high.

+1

and also, it is difficult to move money in/out of most exchanges at this time, because they are small.

Arbitrage is there, but you must understand all fees involved in the various exchanges / fiat currencies / etc.
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May 15, 2011, 10:33:39 PM
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Wouldn't it be easiest, at the moment, to have accounts and balances at each exchange. Then if you saw an opportunity, you could take it without waiting for transfers.
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May 15, 2011, 10:45:01 PM
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Wouldn't it be easiest, at the moment, to have accounts and balances at each exchange. Then if you saw an opportunity, you could take it without waiting for transfers.

No, because the only way to profit 'risk free' is to get the funds over to the other exchange before a price change takes away the opportunity.
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May 15, 2011, 10:58:33 PM
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Wouldn't it be easiest, at the moment, to have accounts and balances at each exchange. Then if you saw an opportunity, you could take it without waiting for transfers.

No, because the only way to profit 'risk free' is to get the funds over to the other exchange before a price change takes away the opportunity.

I see. I guess the risk of holding balances would have to be outweighed by the arbitrage opportunities available. Could it work for someone who already holds both fiat currencies and bitcoins anyway?
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May 16, 2011, 12:03:18 AM
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Wouldn't it be easiest, at the moment, to have accounts and balances at each exchange. Then if you saw an opportunity, you could take it without waiting for transfers.

Yes, this is the way.  It takes bitcoins to make bitcoins  Smiley  Have ready money in multiple spots and buy the underpriced coins, move them to the better market and sell them.  It will also in the end help regulate price.

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May 16, 2011, 01:16:16 AM
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Wouldn't it be easiest, at the moment, to have accounts and balances at each exchange. Then if you saw an opportunity, you could take it without waiting for transfers.

Yes, this is the way.  It takes bitcoins to make bitcoins  Smiley  Have ready money in multiple spots and buy the underpriced coins, move them to the better market and sell them.  It will also in the end help regulate price.

You would have to get lucky enough for blocks to be generated fast enough before the price changed.
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May 16, 2011, 02:31:07 AM
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Wouldn't it be easiest, at the moment, to have accounts and balances at each exchange. Then if you saw an opportunity, you could take it without waiting for transfers.

Yes, this is the way.  It takes bitcoins to make bitcoins  Smiley  Have ready money in multiple spots and buy the underpriced coins, move them to the better market and sell them.  It will also in the end help regulate price.

You would have to get lucky enough for blocks to be generated fast enough before the price changed.

What do you mean?

According to your first post, "Suppose on Bitcoin exchange A, you can sell your BTC for $5.50, but on Bitcoin exchange B, you can buy BTC for $5.30 each. So you buy up all the BTC you can on exchange B, transfer them to exchange A and sell them all for instant profit."

If you already have balances at exchange A and exchange B, you can simply buy the BTC at exchange B and sell your BTC at exchange B at practically the same time. You profit without having to transfer. The only problem is you have to hold balances of BTC and other currencies at the exchanges.
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May 16, 2011, 02:53:44 AM
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Wouldn't it be easiest, at the moment, to have accounts and balances at each exchange. Then if you saw an opportunity, you could take it without waiting for transfers.

Yes, this is the way.  It takes bitcoins to make bitcoins  Smiley  Have ready money in multiple spots and buy the underpriced coins, move them to the better market and sell them.  It will also in the end help regulate price.

You would have to get lucky enough for blocks to be generated fast enough before the price changed.

I have seen the price differences last for days, not hours or minutes.  The main risk would be loosing money in the case of a problem with the exchanges themselves (such as hacks, etc) and opportunity cost.

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May 16, 2011, 03:21:41 AM
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Wouldn't it be easiest, at the moment, to have accounts and balances at each exchange. Then if you saw an opportunity, you could take it without waiting for transfers.

Yes, this is the way.  It takes bitcoins to make bitcoins  Smiley  Have ready money in multiple spots and buy the underpriced coins, move them to the better market and sell them.  It will also in the end help regulate price.

You would have to get lucky enough for blocks to be generated fast enough before the price changed.

I have seen the price differences last for days, not hours or minutes.  The main risk would be loosing money in the case of a problem with the exchanges themselves (such as hacks, etc) and opportunity cost.

Are you looking at the actual order books or the last trade?
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May 16, 2011, 03:51:16 AM
 #14

I used to make a little money doing this. I was taking PP risk though, I think that's why I was able to find small amounts frequently. I remember waiting up until bitcoin market would open to make sure I didn't get sniped, lol. All to make like 20BTC. Well, I guess that's worth something now, but it wasn't much then.

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May 16, 2011, 05:34:32 PM
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I created a trading robot to do this, but it could never work on a large scale because the exchanges wait for transactions (edit: Bitcoin funding transfers) to be confirmed (which takes time) before crediting your account. Holding both BTC and USD in both accounts leads to larger losses due to price changes. The whole point of this type of arbitrage is that you must be able to transfer the asset between exchanges instantaneously to take advantage of price mismatches.

Sending orders to multiple exchanges is what a broker does. For now, anyone can have a seat at the exchange, but if Mt. Gox decided that there was some minimum account balance or a seat fee to trade directly on the exchange, then this would give rise to brokerages with seats on the exchange. This is the model of the dinosaur financial system: charge $50k/month to institutions for a seat at the exchange. They create brokerage accounts and can send client orders to the exchange or to other clients. Brokerages can give 'liquidity credits' to clients who place limit orders within the Bid-Ask spread because they can simply fill orders from other clients, not send them to the exchange.

Of course I don't want to see Mt. Gox start charging for a seat, but it would be very interesting to start a brokerage. You would be able to provide many client services that the exchange doesn't, such as shorting, leverage, liquidity rebates, multiple-exchange execution, etc.

This discussion leads into the question of whether someone is going to launch a futures / options exchange. Just think, the miners could sell a futures contract on the coins they will mine, in order to lock in a price. Or you could offset your mining risk by buying an option in the case that you go into that 95% confidence level and get a way lower return than you expected.

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June 01, 2011, 11:59:27 AM
 #16

With the current deflation going on, holding any cash balance with an exchange would negate any profit you manage to make between exchanges and your currency devalues compared with BTC.

Most traditional exchanges work with a deferred settlement period where by the trade is settled X number of days after the trade date. LSE is t+3 (as are most) thus there is no need to hold cash at an exchange.

Of course, to do this you need to know your clients well and be sure you can recover the money involved. I'm not clear if a broker on the LSE didn't pay if LSE would reverse the trades involved or whether they would take legal action against the broker. Obviously the brokers themselves will have similar setups with their clients.

All of this is slightly at odds to the anonymous nature of Bitcoins.

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June 12, 2011, 07:13:27 AM
 #17

The price differences between the various exchanges can be quite big,

There's an app for that!
  - http://fnoose.com/bitcoin/arbitrage - http://forum.bitcoin.org/index.php?topic=14466.0

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June 19, 2011, 03:09:44 AM
 #18

I wrote a tool that compares the order books between MtGox and Tradehill, just to see how much USD and BTC you would really need on deposit to make a reasonable profit.  I used Tradehill and MtGox because they were the only 'live' exchanges with enough volume to make this even worth considering.  What I found agrees with what other people have already said in this thread:  arbitrage exists, but it's probably not worth chasing because of the large deposits required to generate profits.  But I thought it might interest people to see some actual numbers.  Here is an example from around 22:30 EDT today:

BUY TRADEHILL, SELL MTGOX

   MtGox Sell Order: 183.5775 @ 18
Tradehill Buy Order: 183.5775 @ 17.5
========================================================
         Requires: $3212.60625 on Tradehill, 183.5775 BTC on MtGox
         Sold for: $3339.477523
           Profit: $ 126.871273


Note that because moving USD around is very slow, you would actually need a lot more of it in your exchange account than these figures show, assuming you want to do more than one transaction like this per day.  You can move the BTC back and forth in about an hour to restore your balances, but not so with the USD.
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