Altcoins Talks - Cryptocurrency Forum
Crypto Discussion Forum => Cryptocurrency Trading => Topic started by: Mycrypto122 on December 11, 2018, 02:17:17 PM
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Cryptocurrency Arbitrage
Bitcoin arbitrage (https://blockchainmuffin.com/arbitrage) is the buying of bitcoins on an exchange where the price is very low and selling it on an exchange where the price is higher.
The prices of Bitcoin vary on exchanges because the markets are not directly linked, and the trading volume, on many exchanges, is low enough that the price does not adjust to the average right away.
Different types of Cryptocurrency Arbitrage
Types of Arbitrage
If you are planning to start arbitrage trading, you should be are that it is possible when one of three conditions is met:
- The same asset does not trade at the same price on all markets (“the law of one price”).
- Two assets with identical cash flows do not trade at the same price.
An asset with a known price in the future does not today trade at its future price discounted at the risk-free interest rate (or, the asset has significant costs of storage; as such, for example, this condition holds for grain but not for securities).
There are three types of arbitrage:
- Simple arbitrage: Where cryptocurrencies are traded on more than one exchange, arbitrage occurs by simultaneously buying in one and selling on the other.
- Triangular arbitrage: arbitrage resulting from a pricing discrepancy among three different currencies in the foreign exchange market. A triangular arbitrage strategy involves three trades, exchanging the initial currency for a second, the second currency for a third, and the third currency for the initial. For instance, buying Ethereum in EU, sell the Ethereum in the Japan, and then exchange the Japanese Yen back into euro for a profit.
- Price convergence arbitrage: As a result of arbitrage, the price of cryptocurrencies in different markets tends to converge. For instance, the price of Ethereum at Kraken exchange is $1.000, and the price of Ethereum at Bitstamp exchange is $1,500. The price at Kraken is undervalued and the price at Bitstamp is overvalued. Arbitrageurs can buy Ethereum at Kraken and sell the Ethereum at Bitstamp. Due to the effect of price convergence, the prices will become more equal. Your profit will be the amount of convergence.
How can i check info about arbitrage opportunities?
Overall, Bitcoin arbitrage may be an opportunity to make some passive income but at the same time, it has risks. Moreover, almost all exchanges have an API and these can prove to be very prosperous for you. Utilizing these APIs will give you the tools you need to create a custom arbitrage bot, or hire someone to do it for you. Still, even attempting to arbitrage manually can be very beneficial, as long as you watch closely, and make sure you are placing simultaneous trades.
If you want to know about arbitrage opportunities, you can check BlockchainMuffin (https://blockchainmuffin.com/) site, there is special Arbitrage Monitoring panel
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Arbitrage is a good way to gain profits but it has many challenges. You should know the market trends and the possibility of the prices for each coins you want to buy for arbitrage. On the other hand, you must think about the transaction fees among the exchanges. And there are many other things to study.