Arbitrage

[realnowhereman]

While I'm technically fine with Bitcoin, my knowledge of markets and currency trading is rudimentary.

I had to write myself a little python script to pull clarity from all the figures.

Here's my question then, for those who are more savvy than I.  At time of writing:

Code:

BTC/USD = Bid:6.630000;Ask:6.690900
BTC/GBP = Bid:3.480000;Ask:3.500000
GBP/USD = Bid:1.622800;Ask:1.623200

On these figures,

1.000000 GBP will sell for 0.285714 BTC
0.285714 BTC will sell for 1.894286 USD
1.894286 USD will sell for 1.167007 GBP

Surely this can't be right?  16% profit for nothing?

I've looked and I've looked and I can't find the fault in my calculation; but I'm not familiar enough with bids and asks, sells and buys to really be sure that I'm doing the right thing with them.  Can someone more familiar than I tell me my mistake?

[SgtSpike]

I think the difficulty in arbitraging right now is the rate of change in the market.  And those bids/asks are likely rather small-volume.  Sure, if you could instantly do it, you might make out like a bandit through some cumulative transactions, but with how quickly the price of BTC is moving on mtgox right now, you can't be sure that you can resell for a profit 2 minutes from now.

EDIT:  That said, go for it, and tell us how you make out!  Arbitraging helps stabilize the markets, so it wouldn't hurt to have more people out there doing it.

[arturh]

The thing is, how much of each at that price can you buy?

[realnowhereman]

The thing is, how much of each at that price can you buy?

I'm not actually doing it; I'm more interested in the maths.

[k]

I think the difficulty in arbitraging right now is the rate of change in the market.  And those bids/asks are likely rather small-volume.  Sure, if you could instantly do it, you might make out like a bandit through some cumulative transactions, but with how quickly the price of BTC is moving on mtgox right now, you can't be sure that you can resell for a profit 2 minutes from now.

EDIT:  That said, go for it, and tell us how you make out!  Arbitraging helps stabilize the markets, so it wouldn't hurt to have more people out there doing it.

agreed. arbitrage is a good thing and helps add liquidity to the markets.

[benjamindees]

It's not "for nothing".  There is some risk involved.  And you're doing three trades so there may be some fees as well.

What you're doing is basically moving Bitcoins from the UK to the US, which makes sense that it would incur some premium.

[marcus_of_augustus]

It would be great if people started doing this, they get profits for making the markets more efficient ... there is money to be made here, in the interim ... bigger risk/reward now than later.

[wumpus]

I think you'd have to look at the market depths instead of just the current price to do arbitrage right now. It might be a feasible business plan though.

[zby]

The problem is with first moving funds to and from mtgox - this takes time and there is much risk that the prices will change, second with exchanging USD and GBP - for small amounts this is rather costly.  Statistically this should work - but there is not enough trade in local markets to justify the hassle.  But yeah - I do that sometimes, does not pay for the work - but it's like a game.

[realnowhereman]

The problem is with first moving funds to and from mtgox - this takes time and there is much risk that the prices will change, second with exchanging USD and GBP - for small amounts this is rather costly.  Statistically this should work - but there is not enough trade in local markets to justify the hassle.  But yeah - I do that sometimes, does not pay for the work - but it's like a game.

What about when one adds in this assumption: GBP/USD is stable.

(I accept it is not a guaranteed assumption, but it's pretty good, it varies only slowly, especially compared to BTC at present).

With that in mind.  All one would need to do is supply some "float" capital, and push money from GBP to USD via BTC; and then take as long as you want pulling it back from USD to GBP.

As others have said, the market depth is not sufficient that one could just run round and round the loop constantly gaining 16% each time - the second time around, the same prices are not available.

I don't think there is a hugely profitable business there, but there is certainly scope for balancing the currencies correctly, which is beneficial for Bitcoin.

Anyway, I'm pleased to find that no one seems to think my maths is wrong. :-)