Crypto Arbitrage Trading Assistant

The idea of arbitrage trading has held many folks a merchant’s fixation, especially when it can be done over and over again. Arbitrage is the commonly known practice of simultaneously buying & selling a commodity for a profit.

Crypto arbitrage can’t be described as a famous trading method among traders. Nevertheless, it’s one of the most low-risk options that doesn’t require significant efforts. Moreover, there is a vast number of bots and software that can help traders. If you would like to know more about this method, our article is for you. 

What is Cryptocurrency Arbitrage?

Arbitrage is a familiar concept that has been around since stock, bond, and foreign markets emerged. It simply refers to buying and selling the same asset on different markets to make a profit from the difference between the listing price on both these exchanges. 

For example, if Bitcoin is available at a higher price on Indodax than on Zipmex, you can buy BTC on Zipmex and sell it on Indodax to pocket the difference.

Opportunities may arise due to price differences caused by a rapid surge in trading volumes or inefficiencies within the exchange. Smaller platforms tend to follow the prices set by larger exchanges, but this doesn’t happen instantly. This is where arbitrage happens. 

Bigger exchanges can offer better prices, whereas smaller exchanges have to try and compete with them to offer something similar. But these prices depend on supply and demand so that smaller exchanges may actually be more stable.

Leveraging is possible as long as the crypto markets are not perfect. There are mainly two types of crypto arbitrage:

  1. Arbitrage between exchanges (also known as Triangular arbitrage)
  2. Arbitrage within the exchange

We are already quite familiar with arbitrage between the two exchanges. For an opportunity to happen within the exchange, you need to purchase two different cryptocurrencies from the same exchange and sell it when there’s a price difference. If any trader is looking for crypto arbitrage, then they must take into account the risks and rewards associated with it.

The normal arbitrage in finance is spatial arbitrage (or triangular arbitrage for three exchanges), where it is about taking advantage of differences in the listing prices on different exchanges. There are two other methods – cross-border arbitrage and statistical arbitrage.

Cross-border arbitrage is arbitrage in two exchanges that are situated in different countries. You can also have cross-border arbitrage in the form of triangular arbitrage which consists of three exchanges offering differences in pricing. Statistical arbitrage is quite difficult to pull off as it involves mathematical modelling. It is quite risky as in a crypto market; things can change within a short period.

Crypto Arbitrage Trading Assistant

How Does Cryptocurrency Arbitrage Work?

As we discussed in the previous section, arbitrage can be caused by various market factors. But, one of the major factors is the difference in trading volumes between the exchanges. 

In larger exchanges, the trading volumes of cryptocurrencies may be quite high, which leads to lower prices. Whereas in other exchanges where the trading volume is minimal, the price of the crypto coins might be quite high.

There have been instances where people bought cryptocurrencies from smaller exchanges and sold it on larger ones for arbitrage. One such case was observed in 2017, where Bitcoin on a local exchange was much higher than quoted on international exchanges.

Crypto arbitrage also occurs when a crypto coin is listed on popular exchanges such as Zipmex. Even geography plays an important role in arbitrage as it may be easier or harder to sell during different times of the day. To be successful at this, you need to look out for an opportunity. Once you notice an opportunity, you need to execute it quickly. You can document in your order book how much you will make by buying and selling on different platforms, and then make a decision accordingly.

It takes around 15-20 minutes for major coins to confirm the transaction. If the market price drops within this time frame, then you may run a risk of generating less arbitrage. 

Simultaneous arbitrage is rare in the crypto world as the market is quite volatile. You may even have to wait for a couple of days to execute the perfect arbitrage. This is the case of single-side trade, where you buy the cryptocurrency, and you cannot sell it for arbitrage.

Finally, when you execute the crypto arbitrage, ensure that you don’t mess things up. Make sure to double-check your analysis of the buy and sell listings on the exchanges. Also, have a closer look at the trading volumes.

You may be able to find programs that do the arbitrage work for you, but they might not be quite effective as there are plenty of risks to consider, for instance, security. To be able to perform crypto arbitrage, you also need to open up accounts in various exchanges. Doing so might make yourself vulnerable to a security risk as some platforms may get hacked, or the exchange may just steal your coins if they are not reputable.

Can I Find Crypto Arbitrage Opportunities This Year?

Although cryptocurrency arbitrage has significantly changed, it’s still a profitable strategy that may lead to benefits if you apply it correctly. 

The amount you earn will also depend on the number of orders you place. According to recent estimations, one trade on Kraken and Binance platforms may bring an average profit of $15. This year you can expect a spread of 0.2%-2.5%, with an approximate benefit in the range of $10 and $50. Let’s imagine you earn $15 on average. If you find a cryptocurrency with a significant number of opportunities, you can earn up to $150 per day. 

To make your trades more profitable and fast, you can use 3Commas bot. It has collaborated with Binance and supports a wide range of exchanges. 3Commas provides a wide range of services, from standard analytics and automated bots to back-test portfolios and the monitoring of portfolios of other users’. 

Is Cryptocurrency Arbitrage Legal?

Yes, cryptocurrency arbitrage is legal. Each exchange offers its own rate for a specific cryptocurrency. This price is approximately the same across all exchanges, but sometimes there is a deviation of about 5-10% or rarely as high as 20%.

Cryptocurrencies are decentralised, highly volatile, and the market is still in the initial stages of development. Due to this, arbitrage opportunities arise and are more frequent compared to other markets.

Crypto arbitrage rises due to market inefficiency and not due to the actions of an individual or group of individuals. However, as more traders engage in arbitrage, there are bound to be lesser opportunities for others as such traders immediately nullify the price difference. As you already know, arbitrage helps the market to stabilise and increases the trade volumes on various exchanges.

Simple & Triangular Arbitrage

Crypto arbitrage has several types. We will start with the most common ones. Simple and triangular approaches have a significant difference. Applying the simple method, you buy and sell one currency, usually on two exchanges. When using triangular arbitrage, you have to deal with three cryptocurrencies, but you can use a single platform. Nevertheless, a simple way is more comfortable than the triangular one. 

Triangular Cryptocurrency Arbitrage

A triangular arbitrage can also be called cross-currency arbitrage and three-point arbitrage. It may take place on a single exchange or several. As you can understand from the name of the approach, this arbitrage connects three assets. The idea is simple – trade the first currency to the second one, the second one to the third one, and in the end the third one to the first one. 

Pros Of Crypto Arbitrage

Fast Profit

You can perform crypto arbitrage as early as the transactions are completed, which may be within an hour or lesser. This is much quicker than traditional trading where you buy and hold cryptocurrency to sell at a later date.

Wide Range of Opportunities

There are numerous crypto exchanges in the market these days. With so many, there’s a wide range of arbitrage opportunities. According to Coindesk, there are more than 391 cryptocurrency exchanges in the world today.

The Crypto Market is Still Developing

Cryptocurrency is yet to be widely accepted by the public, and hence the crypto market is still in the early stages of development. Due to this, there is quite a bit of irregularity, disjointing, and lack of information transfer between exchanges. There are also a fewer number of crypto traders and less competition in the market, which leads to potential price differentials.

Cryptocurrencies are Still Volatile

Although the first cryptocurrency, Bitcoin, was launched way back in 2009 by Satoshi Nakamoto, it is still one of the most volatile cryptocurrencies in the market. This is due to the changes in supply and demand and highly because the coin is decentralised. With cryptocurrencies being so volatile, there can be huge price changes between exchanges. This gives us an opportunity for arbitrage

Cons Of Crypto Arbitrage

KYC Restrictions

To trade on any cryptocurrency exchange, you need to adhere to the KYC regulations that are in place. Sometimes, you need to hold a bank account in the same country where the exchange is based, or you may need to link your bank account and verify your identity. It may also take up to 24 hours to verify your account via KYC before you can trade.

Storing Coins

Since you need to access multiple exchanges for arbitrage, you may need to store your coins across them all. Since these crypto coins are stored in an online account, they are susceptible to hacks. Some of these smaller less known businesses also tend to steal the coins from their customers. So you need to be aware of this risk before you start signing up for crypto trading on less established platforms.

Fees

Crypto exchanges do not let you deposit, withdraw, or trade for free. They charge a definite percentage of the money as fees. So you need to include the fees while calculating the profit made from arbitrage.

Large Trades Provide Better Profit

Profits from arbitrage might be quite small after all the processing delays and fees that apply. To be able to make huge profits from arbitrage, you need to increase the trade volume.

Withdrawal Limits

When you place large trades, you need to keep in mind that exchanges have specific withdrawal limits. So you may not be able to withdraw the crypto balance from your wallet on the same day.

Timing

Each cryptocurrency transaction may take at least 10 minutes to be completed and verified by the miners. Within this period, the market may move against you, and you may lose your potential arbitrage profit. There are many cases where the trader has not received any profit as the market collapsed, and the profit turned into a loss.

In some cases, you might have bought coins from one exchange, but the market moved against you, and you were not able to sell the coin on another exchange.

Slower Transactions

With a surge in the trading volume on the global cryptocurrency markets, transactions take a longer time to be processed and verified. This could be a major issue when you are looking to transfer funds quickly. Bitcoin transactions take much longer to be processed when compared to Ethereum (ETH) transactions.

Competition

There may be more traders looking for arbitrage, and this may lead to changes in the trading volumes on different exchanges. This may also reduce arbitrage opportunities for others.

Crypto Arbitrage: Fees to Pay

Many traders, especially newbies, count only the profit they will gain from successful trades. However, they forget about the costs they will have to deal with. Fees may take a good chunk of your gains without you even noticing it. Let’s consider what costs you may face. 

Fiat Deposit / Withdrawal Fee

It’s the most common fee that is applied to any market operations. The fee is charged by an exchange when you deposit and withdraw funds to your bank account or a credit card. It’s unlikely you will find an exchange that doesn’t charge this type of fee. Thus, you should aim to find the lowest fee. 

The size of the fee will depend on the payment method. If you use a credit card, the transaction will occur immediately. However, cost is the largest one. Many exchanges and brokers use a wire transfer. It’s a little bit slower, but the fee is lower as well. In the case of a direct deposit, you will pay the smallest fee. At the same time, the time of the transaction will increase significantly. 

Transaction Fee

There are three main types of transaction fees. These are a fixed fee, maker fee, and taker fee. A fixed fee doesn’t change regarding the asset, volume, and order books. If you want to execute the trade immediately, you pay a taker fee. If market conditions don’t match your expectations, you can wait some time for the perfect match. Then you will pay a maker fee that usually exceeds the taker fee by 2-3 times. 

Cryptocurrency Deposit/Withdrawal

It’s a common practice that exchanges don’t charge fees if you deposit cryptocurrencies. However, if the exchange needs to create a new address for your asset, you will have to pay a fee. 

The withdrawal fee is not always present. It changes depending on the exchange you trade on. Some exchanges don’t charge this fee. 

How to Make Your Fees Lower

Here are our recommendations:

  • If you find a perfect match between two assets, your order will be executed without a time lag. Thus, you won’t have to pay fees.
     
  • Another obvious tip is to use cryptocurrency exchanges that charge low fees or don’t apply them at all. Read the terms & conditions carefully to be aware of any possible fee the exchange may charge from you.
     
  • Some exchanges don’t charge fees if you withdraw coins. Nevertheless, they usually apply fees if you want to withdraw fiat currency.
     
  • The credit card fee is the largest among others. Thus, to have fast but not so expensive transactions, choose wire transfer.
     
  • If you find an exchange with the deposit transaction, you have the chance to lower the fees you will need to pay. 

Crypto Arbitrage Software & Robots

Although crypto arbitrage seems like an easy deal, it has some pitfalls you can encounter. Thus, even professional traders use different software and robots that help them place orders and find perfect asset matches. Fortunately, there is a wide range of software that makes the path of the trader much easier. 

Crypto Arbitrage Software

Crypto arbitrage software is mostly used to create your trading strategy or a bot without specific coding skills. Strategies are based on particular indicators. The software is a more complicated and comprehensive tool for crypto arbitrage than robots, as bots are just a part of them. 

Automated Crypto Arbitrage. Is It Possible?

Automated arbitrage becomes more and more popular as it’s more accurate (if the settings are correct) and saves traders’ time. There are plenty of platforms and robots that provide trading signals or also execute trades under specific conditions, but traders can implement their own Expert Advisors if they are familiar with coding. 

Crypto Arbitrage: Platforms and Monitors

The crypto arbitrage platform and monitor software are used by traders to find arbitrage opportunities between some cryptocurrencies and altcoins and different crypto exchanges in real-time mode. They also support the use of many arbitrage strategies and liquidity management and help traders follow market conditions within one app. 

Arbitrage platforms are developed to connect buyers and sellers. Such platforms provide trading on different exchanges, usually differ and have a large number of payment methods. Also, some platforms offer additional ways of gaining rewards. For example, Paxful provides a premium on different payment methods. Also, you can do crypto arbitrage in the markets of different countries. For instance, if you sell BTC, you can find a market where BTC is harder to purchase, so its price is higher. 

Terms To Know

  • Fiat (fiat money). It’s common money issued and maintained by governments. The money you use for daily purchases and service payments. For example, euro, British pound.
     
  • Crypto Asset. It’s a digital asset created as an open and decentralized means of payments. It’s recorded in the blockchain. There are four types. These are a cryptocurrency, platform tokens, utility tokens, and transactional tokens. 
     
  • Volatility. It’s a degree of price fluctuations. High volatility refers to huge market fluctuations caused by unexpected events. Low volatility means small changes in the price due to the lack of the traders’ interest.
     
  • Order Book. It’s a ledger that combines all of the necessary information about current buy and sell orders that helps traders make their decisions.
     
  • Deposit. It’s the amount of money you are ready to invest in your account to purchase a security.
     
  • Withdrawal. It’s the amount of money you can take from your account after successful trades.

Final Thoughts on Cryptocurrency Arbitrage

There are multiple arbitrage techniques and opportunities that one can benefit from, whenever there is a market inefficiency. However, as more traders indulge in arbitrage, these opportunities start to disappear as soon as they arise. This helps the market to stabilise, and the prices may end up similar across exchanges.

Talking about exchanges, Zipmex is one of the most popular licensed and regulated exchanges in the crypto market. Zipmex offers low trading and deposit fees and also provides the best BTC prices. You have a variety of deposit methods, and they have a simple to use and beginner-friendly exchange.

If you live in Australia or Singapore, Zipmex does not charge you for fiat withdrawal fees. Zipmex only charges a meagre 0.2% for all buy and sell trades, which is quite a low fee in the current market. Zipmex also supports various fiat currencies such as USD (United States Dollar), AUD (Australian Dollar), SGD (Singapore Dollar), and IDR (Indonesian Rupiah).

Bank transfers may take between 1-3 business days whereas crypto deposits are almost instantaneous. Zipmex considers safety a priority. You can enable two-factor authentication for your account, which adds an extra layer of security. With just your login credential being compromised, hackers cannot gain access to your account. Zipmex also has its very own online wallet where you can store and withdraw cryptocurrencies from. You just need to navigate to the “Wallet” section in the top menu. You can head over to the exchange and see for yourself and begin your arbitrage journey.