What is crypto arbitrage?
Crypto arbitrage is a strategy whereby the user buys a cryptocurrency at one price, sells it at another, and does so in pretty large volumes. The user earns on the difference between the buy and sell price. You can trade multiple currencies at once. As many as 150 cryptocurrency trading pairs are popular on Kraken. For example, triangular cryptocurrency arbitrage is also common. That is when you buy and sell three currencies, making a profit on the difference between their prices. For example, you buy one coin for Bitcoins, sell it for Ethereum, and convert Ethereum back to BTC. Profit!
Crypto arbitrage trading is available not only on cryptocurrency exchanges but also on special decentralised websites. For instance, Balancer, Uniswap, or Curve are decentralised exchanges where you can buy and sell cryptocurrencies the same way as on traditional exchanges. They differ from crypto exchanges primarily in the lack of high commissions (the same Kraken asks from 0.1% to 0.26%, which can be a big problem when dealing large amounts).
Before making money with crypto arbitrage, you need to calculate all the risks of your decision. There are many: you can take a loss if you are not fast enough to make deals and thoughtful enough in your moves. Or you may accidentally run into a steep decline in cryptocurrency sales, which could cause your deal to fail, resulting in a simple loss of time and money. The wrong crypto arbitrage strategy can also lead to significant expenses on transaction fees and taxes, as well as investments in fraudulent projects and currencies, which will go bust days after they receive your funds. To avoid falling for scammers, you can use a special scanner for new crypto projects or any service that works on AI and analyses the market. All major crypto platforms offer them.
Is crypto arbitrage profitable?
Yes, cryptocurrency arbitrage is still profitable. To make big money from it, you need to use legit services, trade on exchanges and decentralised platforms simultaneously, keep your finger on the pulse and study investor behaviour in the market. But be prepared for low risk and low return. Are you confident that the money you’ll make from arbitrage will be worth the effort? If not, you can use automated crypto arbitrage. It is automated cryptocurrency arbitrage for the funds you provide. You can do it through a special crypto arbitrage app or a programme you set up for yourself. Automated crypto arbitrage trading is now becoming widespread, as the machine does all the work for you as an investor. Even though it requires a lot of money, you do not need to monitor crypto arbitrage signals and calculate your next steps, so using an automated service can benefit you.
Is crypto arbitrage legal?
Yes, cryptocurrency arbitrage is beneficial. The scope of the law does not define it. However, coins obtained through trading may get treated by some jurisdictions as securities. If this is the case, you will have to pay taxes on them. Therefore, ensure that before you make a transaction, the coins you buy are not subject to taxation.
Crypto arbitrage opportunities
Is crypto arbitrage still possible? Yes, absolutely. And what options are there for earning within this area? How do you use it all in general? What do you make money from?
A little digression: to understand how the market works, you need to know the term “spread”. It is the difference between the buy price and the selling price. The bigger the spread — the bigger the profit. To increase the spread, investors buy coins on one exchange and sell on another, constantly mixing channels for obtaining the currency.
Opportunity 1. Using the crypto arbitrage tool. Many services monitor the cryptocurrency arbitrage market in real time. For example, in a cryptocurrency arbitrage trading bot, you can find out what and where is being bought and sold, at what price, in what volumes, what commissions are getting paid, and what orders are hanging in the exchange’s cup for hours unnoticed.
Opportunity 2. Using unpopular cryptocurrencies. You can find the largest spreads in cryptocurrencies that are not yet popular. Sometimes, you can’t even see it in any trading bot. Nevertheless, the fluctuating value of an unpopular cryptocurrency allows you to make millions of dollars on it.
How to do crypto arbitrage
How do you do cryptocurrency arbitrage?
- Register on exchanges. Better on several exchanges at once — the value of coins on traditional and decentralised exchanges is different, so you will have more chances to score.
- Deposit funds into exchanger wallets. You need to buy cryptocurrency with other cryptocurrencies or with fiat money like dollars and euros. These need to get deposited into your wallet account in the systems.
- Research which currency pairs have the highest spreads right now. Do not start trading without proper market analysis, do not expect to be lucky. It would be best if you got equipped to earn a lot. Keep track of the cryptocurrencies in the market, use the exchange’s built-in calculator to figure out which spread will be the highest, and read lessons on manual crypto arbitrage — most specialised platforms are interested in educating would-be investors.
- Buy and sell the first cryptocurrency. Do not wait for the spread to increase to galactic sizes. Learn from small spreads, and ensure you are prepared to go into negative several times and get a loss. It is normal.
Best cryptocurrency arbitrage software
Which is the best crypto arbitrage trading platform? We found several choices for you.
Cryptohopper is a cryptocurrency arbitrage bot. It stores account from different exchanges and keeps track of changes in your portfolios. It also offers ready-made arbitrage strategies and signals and supports various payment methods while offering the free bot version.
Bitsgap is another bot that can analyse more than ten thousand cryptocurrency pairs and find potentially exciting coins for investors. It costs about $30 per month (there is a one-week free trial version), supports different exchanges, and keeps your funds not in your internal wallet but in the wallets of exchanges you use. However, it does not have a mobile app, which makes it impossible to use on a smartphone.
The Coinrule software has one hundred and fifty ready-to-use trading strategies. It is free to download, analyses strategies based on previous sales of the same cryptocurrencies, and works 24 hours a day.
It supports 38 exchanges, implements any buy and sell strategies, performs fast technical analysis, and generates real-time reports on strategy performance. It does not operate on Python, like most bots. Instead, it operates in the special scripting language HaasScript for trading bots. Moreover, it’s completely free.
Pionex is a bot containing bots for crypto trading for beginners and advanced users. The bots are free, and you can enable up to five times leverage. Nevertheless, custom trading strategies are not supported, which nevertheless does not affect the profitability of arbitrage for users.
Trality is a platform for creating bots that offer automated buy and sell strategies. It has a simple interface, explained at first use, ready-made trading solutions, and the ability to create your own algorithm for tracking specific indicators and work solely on it. In addition, the service is free no matter how many bots you make.
It develops strategies based on twenty indicators, for which it charges a monthly fee of approximately $15. In addition, it copies settings of other bots, mixes them up, sends notifications about changes in the rate of a particular coin, supports signals, and trades options.
Crypto arbitrage bots
Which bots can and should you use for arbitrage?
- Pionex is suitable for trading on the spot market. It offers futures, i.e. investment instruments based on buying the opportunity to buy an asset at a set time in the future at a price fixed now. Inside the bot is a functionality that enables trading with up to three times the margin and with leverage. The bot trades differently for different users, is not the same for everyone, and is even available in the app. It charges a commission for trading, which is 0.05%.
- Coinrule is a good option for beginners. It trades crypto on the ten most popular exchanges and gives access to pre-made strategies. You can develop your strategy and start trading through it. Already ready variations of command responses can be edited and changed to suit you. There is an app for smartphones. The “Beginner” package will be free, “Amateurs” will need to pay around $30 a month, the “Traders” pack will cost $60 a month, and the “Pro” package will cost about $450 a month. You can buy all the plans for a year at a discount.
- Cryptohopper is an arbitrage bot and crypto portfolio management app. It supports over a hundred cryptocurrencies, tracks prices in real-time, and uses artificial intelligence to make buying and selling decisions. It trades on 16 exchanges, generates free charts and reports, and gives access to expert advice. The app even offers courses on cryptocurrency trading. The first seven days are free to use the bot; the cost will vary from $17 to $100 monthly. There are three pricing plans available: Discoverer, Adventurer and Hero. There are purchase discounts for each of them.
Crypto arbitrage strategies
What strategies exist in the cryptocurrency arbitrage market?
- Inter-exchange arbitrage. You buy crypto on one exchange and sell it on another.
- Spatial arbitrage. You buy crypto on an exchange in South Korea and sell it on an exchange in Germany or America. That is, you do the transaction on several exchanges simultaneously.
- Triangular arbitrage. You buy and sell three or more cryptocurrencies. The cycle can start and end with the same coin. Transactions get conducted within the same exchange.
- Decentralised arbitrage. If an exchange is decentralised (we gave examples of such exchangers at the beginning of the article), and the currency price on it is different from the price of centralised service, you will consider trading for profit on the difference of rates as decentralised arbitrage.
- Statistical arbitrage. You execute trades using various statistical, econometric, and computational methods. This type of arbitrage is best suited to traders familiar with the market’s mathematical models and mechanisms.
- Interest rate arbitrage. If an exchange offers loans, you can make money on the interest rate difference. For example, borrow on one exchange, and lend at a higher interest rate on another. There is one difficulty here: to be able to lend crypto on the exchange, you have to be either in a pool of players who can provide loans to users or be a pretty risky person who is not afraid of losing lent money.
- Bot arbitrage. It’s simple. You use software and bots to develop strategies for you and make money. But of course, before you start working with bots, you must carefully study their market, choose a few variants you trust the most, and study them from all sides. So be careful and don’t believe on the say-so, and then you can make millions of dollars, if not more, from cryptocurrency arbitrage.