Cryptocurrency arbitrage – how traders earn

Cryptocurrency arbitrage – how traders earn

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Exchange cryptocurrency arbitrage is one of the ways to make money, it consists in buying crypto at a low price on one exchange and selling it at a higher price on another trading platform. At first glance, this style of trading may seem simple, but like any cryptocurrency trading strategy , arbitrage has its own peculiarities and risks.

Cryptocurrency arbitrage: what is it , how is it earned

Cryptocurrency arbitrage is a trading strategy in which a trader simultaneously opens two or more transactions of different directions on different trading platforms. How do you make money on cryptocurrency arbitrage ? The essence of the strategy is quite simple and does not carry big risks: after comparing the crypto exchange rate on different sites, a trader buys an asset on one and sells on another, making a profit from the difference in rates. This strategy does not involve long-term forecasting of exchange rate dynamics and does not require serious investments. However, it is necessary to understand the types of arbitration and apply the strategy correctly. You can follow the rates and compare the value of assets using special services, for example, CoinMarketCap or CoinGecko .

There is a classic exchange arbitrage. This is the easiest way to make money. A trader must quickly buy and sell the same asset on different platforms. For example, buying a crypto for $100 on one exchange and selling it for $101 on another, he will make a profit of $1.

A more complex option is triangular arbitrage. This strategy involves trading several trading pairs within the same exchange. For earnings, the difference in rates between three cryptocurrencies is used . For example, a trader noticed that the exchange rate of Bitcoin is overpriced compared to Litecoin , but understated compared to Ethereum . To make a profit, he can buy Litecoin for Bitcoin (using it as the base coin), buy Ethereum for Litecoin , and finally buy back Bitcoin by selling Ethereum . If the calculations are initially correct, eventually the trader will have more Bitcoin than before the transactions.

Benefits of cryptocurrency arbitrage

There are many ways for a trader to make money on cryptocurrency , and arbitrage is considered one of the least risky, and even beginners can master this strategy after undergoing training. Arbitrage transactions are profitable in almost 100% of cases, the main thing is to make calculations correctly and carry out transactions quickly.

Benefits of cryptocurrency arbitrage:

  • There is no need to make long-term forecasts of changes in the exchange rate of the crypt, the benefit is derived here and now.

  • Almost always transactions bring profit, albeit low.

  • Arbitrage operations equalize asset prices in different markets, balancing them.

What are the risks of arbitration

Competent investment and cryptocurrency arbitrage allow you to earn with minimal risks. However, there are hidden risks:

  • Commission. It is important to know in advance and calculate what transaction fee will be charged by the exchange. Due to the relatively low profitability of the strategy, a trader on commission payments may lose more than he earns on the transaction.

  • Transaction speed. In order to successfully earn on cryptocurrency arbitrage , transactions must be made as quickly as possible, since the rate of virtual assets sometimes changes in a matter of minutes.

  • Technical problems. A trader’s plans can be disrupted by a technical failure on the exchange, due to which he will not have time to sell the asset in time, earning on the difference. Failures are rare, but the risk of technical problems should not be ruled out.

Where can I learn how to make money on cryptocurrency arbitrage?

Learning cryptocurrency arbitrage is the first thing a trader needs to do if he has chosen this way of earning. Cryptocurrency trading is not easy if you have not figured out how the market works, what affects virtual asset prices, what trends exist, and how to respond to them correctly. Crypto will help you learn the maximum about trading and learn how to earn effectively on cryptocurrency Crew . We have developed a training course for beginners and created a popular crypto community in Ukraine. Become part of the team and develop in the crypto -currency field!