Cryptocurrency arbitrage: concept, types and ways of earning

Getting income with cryptocurrency attracts more and more attentionth quantitiesa of people. Some of these ways require a high level of knowledge, understanding of the principle of operation and the ability to use the appropriate tools. To this category applies arbitration, through which you can get practically unlimited profit. What types of arbitration exist and what tools are used to work with them? Read about it in our article.

The concept of cryptocurrency arbitrage

Cryptocurrency arbitrage is understood as carrying out operations that are aimed at making a profit from the difference in the value of assets within the trading platform or on different sites. Trading one asset on two exchanges is especially popular. The situation with different prices arises due to different demand for the same asset on different trading floors. Other factors also have an additional influence. Therefore, on one platform, bitcoin can be $100 or $300 cheaper, and due to this price spread, the user makes a profit.

To keep abreast of changes in the pricing of digital currencies, you should choose the right tool. For example, the CoinMarketCap platform is great for this. If you choose a well-known coin that is traded on different exchanges – the same bitcoin – you can see a run-up in value. In the case where the difference allows you to cover the cost of commission, this is a good opportunity to make a profit on resale.

Arbitration types

There are two types of arbitration:

• classical;
• static.

Static arbitrage is based on market inefficiency. For example, using high or low volatility at the moment compared to the historical one. Or with a multidirectional movement of assets in the event of a correlation of 50% or more. It should be noted that this method is more risky, so it is better to use it for already experienced arbitrageurs.

In classical arbitrage, a chain of instantaneous transactions occurs:

• buying a cheap currency on one exchange and selling it on another – at a higher price (such actions can be performed on several sites);

• work with resale at once with three pairs of assets on one exchange;
• conducting transactions on different platforms, but with one system.

Also, classical arbitration can use a strategy when actions are delayed in time. This may include:

• acquisition of the underlying asset and sale of a futures contract;
• work with related assets, in which the rate of one pair decreases or increases.

Intra-exchange and inter-exchange arbitrage

Arbitrage trading occurs in two ways:

• intra-exchange arbitrage. This option involves making transactions with different pairs of digital assets exclusively on one exchange. To use such trading, you need to see the opportunities for earning, that is, you need some experience. The main advantage of intra-exchange arbitration is the minimum payment of commissions.
• Inter-exchange arbitration. In this option, the purchase of cryptocurrency is carried out on one exchange, and the sale is carried out on another, where the rate is higher. Here you need to take into account the commission for withdrawing from the exchange, so the difference in the value of the asset between the two sites should exceed transaction costs and risks. After such actions, you can perform several more times – make money with a profit on the first exchange and repeat the cycle. These arbitrage windows need to be monitored very carefully, as they can only open for a very limited amount of time.

Programs for cryptocurrency arbitrage (scanners and bots)

For more efficient arbitrage, there are special programs that can significantly automate the tracking of profitable pairs for arbitrage. Next, we will consider a list of programs for automated cryptocurrency arbitrage. The list is based on consumer inquiries and does not constitute a recommendation.

1. Bitcoin Dealer. It is a special bot that works within one specific exchange – Bitstamp.
2. blackbird. This bot performs bitcoin inter-exchange arbitrage. Its essence is in comparing the performance of digital assets on different platforms. Based on this, he selects the best options for transactions. With it, you can organize earnings on short positions.
3. Bitsgap. The program is also a bot that can monitor pairs suitable for arbitration on various sites. Customers are given a free trial period of seven days.
4. triangular arbitrage. With the help of this program, it is possible to earn money by converting cryptocurrencies with an increase in profit.
5. CryptoShock.org This is a special inter-exchange arbitrage scanner that analyzes and shows profits.
6. multitrader.io. This bot has a very simple interface, which is great for beginners. The software supports three arbitrage strategies and 90 trading pairs.
7. Cryptohopper. Dutch bot, which is distinguished by its user-friendly interface and interaction with various exchanges. It is designed not only for inter-exchange trading, but also for arbitrage between multiple trading pairs on the same platform.
8. bitscreener. A convenient scanner that can be used both in the browser and as a mobile application on iOS and Android. Shows the following characteristics of digital assets: type of coin, which exchange it is traded on, market capitalization, value, etc. It can be used in the free version. The paid version adds a few extra options.
9. marketcap. This is a free scanner that searches for crypto by selections such as DeFi, Polkadot tokens, stablecoins, etc. You can also search for coins by value, capitalization, 24-hour trading volume, etc.

Rules for choosing programs for arbitration

When choosing a bot or scanner for safe profit, you need to consider the following criteria:

• Reliability. When choosing a bot that trades on behalf of a user, you should carefully consider such software, since keys to wallets or passwords to accounts will be available to it. Therefore, choose a trusted developer with high-quality software. Before sending calls and logins with passwords to the bot, disable the ability to withdraw money without notification.
• Interaction with stock exchanges. It is very good if the software can work with at least five exchanges. Some of the bots can even interact with twenty sites, which significantly expands the range of work.
• Pricing. Be sure to consider how much software services and transactions will cost you. A sufficient amount of funds will be spent on these articles.
• Intuitive functionality. All programs differ in complexity, because some of them are aimed at professionals, others – at beginners. It is necessary to take into account the level of preparation for arbitrage trading in order to use the purchased software as efficiently as possible and customize it for yourself.
• Speed. In arbitrage trading, speed is very important, because the desired value of an asset can change in seconds. Therefore, the selected software should carry out operations as quickly as possible in order to have time to buy / sell a coin.
• Support and updates. The program must be updated periodically, because the cryptocurrency market is changing very quickly. If this does not happen, a situation may arise when the software simply becomes incompatible with the work of the exchange.

Advantages and disadvantages of arbitration

A user who decides to engage in arbitration should know all the nuances of this type of earnings on cryptocurrency. From positive moments you can note:

• the possibility of large earnings in a short time;
• income has no limits, because there are no restrictions on the number of transactions;
• there is almost always earnings, because the difference in the cost of cryptocurrency on different sites or within the exchange itself is inevitable;
• you can earn money anonymously using the appropriate sites;
• You can work in any schedule, so arbitration can become both the main way of earning money and an additional one.

Arbitration also has its own limitations, which should be taken into account with insufficient knowledge of fundamental and technical analysis. These include:

• the need to be careful when transferring, because commissions can vary greatly on different sites;
• significant initial capital for the purchase of different cryptocurrencies on several exchanges;
• the possibility of losing money due to the volatility of the crypt in case of incorrect forecasting or insufficient speed of operations;
• the ability to carry out quick profit calculations based on data on the limits of the selected exchanges and commissions on them;
• the possibility of force majeure, for example, an increase in the time of the transaction on the exchange or the occurrence of technical problems due to which access to the platform is temporarily lost;
• the arbitrator must constantly be “in the moment”, which means regular monitoring of the situation on the platforms chosen for work;
• high competition, especially from bots, which are constantly being modified.

In general, if you choose a reliable tool for trading, carefully monitor the market and reasonably make risky operations, then it is quite likely to make a profit in a short time. Moreover, this way of earning is available to anyone who has enough funds to enter the market and basic knowledge of exchange trading.

Disclaimer. Investing in any financial asset carries the risk of losing capital. Nothing in this text can be considered an investment recommendation or an offer to buy/sell any financial instruments. For all their actions in the stock market, each investor bears full responsibility independently.