What is Crypto Arbitrage?
The basics of crypto arbitrage are simple: You buy one crypto on an exchange that offers the lowest price while trying to immediately sell on another exchange. This is arbitrage trade between exchanges and the main goal is to take advantage of price differences.
The same can be and has been done on stock exchanges for a long time. However, the arbitrage trades are not as profitable there, since the bid-ask spread in conventional markets and trading pairs is small compared to what you see in the order books of crypto markets like Ethereum (ETH) or EOS.
The basic steps are the following:
- You register an account on two or more exchanges like Coinbase Pro or Binance.
- Deposit fiat and buy cryptocurrencies like Bitcoin or Ethereum.
- Transfer cryptocurrency to the other exchange.
- Sell for a higher price.
- Withdraw the profit.
It is becoming increasingly difficult to find good arbitrage opportunity and make profits. This is due to more market stability and more traders speculating across exchanges.
There are, however, other types of arbitrage tools and services that allow monitoring price differences between several exchanges in one place. These will be discussed later on in the article.
Why is cryptocurrency arbitrage so popular?
Since the crypto market is still relatively new and transferring assets from one exchange to another as well as placing fast buy and sell orders is relatively simple, a lot of traders use arbitrage trading as a good way to increase crypto holdings. This is also a great way for cryptocurrency exchanges to generate extra fees as arbitrage trading involves a lot of transactions in a short period of time.
Additionally, since there are crypto exchanges that have reasons for offering lower or higher ask or bid price like the crypto exchanges in the United States, taking advantage of the price difference is relatively simple if you have the capital. However, you have to take into account there is not much use for moving capital around two exchanges unless you have, for example, 1 BTC to trade. This is because there are additional transfer fees associated with moving crypto around between exchanges.
Therefore, if you have a good understanding of the cryptocurrency market and crypto arbitrage trading – and some coins in your stash, It is a good way to make money due to price differences between multiple exchanges and different markets.
As long as buy and sell orders get executed as fast as possible since a sudden market move can ruin potential profit opportunities.
What are the best cryptocurrency arbitrage tools?
Since the beginning of cryptocurrency trading, buying and selling coins on different exchanges in order to arbitrage trade has hastened the development of various arbitrage trading and monitoring tools.
Let`s take a look at some of the best that are currently available:
Launched in February 2018, Bitsgap is an example of a cross-exchange platform that provides automated trade placement through various exchanges. It allows you to control your assets across multiple exchanges through a single app in order to take advantage of price differences across exchanges.
It is considered to be among the pioneers in cryptocurrency arbitrage and has a well-developed exchange API solution. It helps to set orders and execute trades while easily tracking your portfolio of coins and their prices.
Additionally, they offer services such as Trading Bot and Signals that can help you automate your trades by either placing market orders or limit orders directly to an exchange. As they state, their algorithm detects automatically what the best trade opportunities are across several exchanges. All you need to do is to connect the exchange accounts you have to the platform.
They also offer a free trial, which allows you to use their standard features with a $1,000 monthly trading limit. The pricing is divided into several levels with various tools and features unlocked as you move up the subscription plan.
Cryptohopper is another easy to use arbitrage tool that can help traders with different experience levels as well as crypto holdings try out automated crypto trading and easily track crypto prices.
They have an official partnership with several of the largest exchanges like HitBTC, OKEX, KuCoin, and offer affordable prices for their product. The first 20 trades or positions are free of charge and after those, the price tiers of their membership are mostly based on the trading volumes and the number of coins you wish to select. Top tier membership offers additional features such as Algorithm Intelligence, Market Making, and Arbitrage.
They also offer a wide variety of resources you could use to get familiar with their platform. Their “Get Started with Cryptohopper” is great for new traders that do not have prior experience with arbitrage tools. Further on, you can read their well-detailed documentation on how to use the platform in a more efficient way.
Additionally, their social trading platform allows you to share new strategies and their optimization in the internal chat. Several trading bot templates are offered for you to try, which is a great resource for those who are still new.
Overall, this platform is well suited for beginners.
Gimmer offers not only an automated crypto trading solution but also a Discord group which helps to build a community of crypto traders. The platform works on Windows, OSX, Linux as well as others which is a great option for crypto traders that use several operating systems.
The basic features are similar as with others, however, Gimmer offers free backtesting over a previous trading period as well as creation of a free Trader Bot with one indicator and crypto pair. This is a great option to try out in both their offer and the paid version. The membership can be purchased by using Gimmer Tokens (GMR). This offers even more solutions and features such as an automated crypto lending bot, social trading network, portfolio of trading strategies, and a simulator among others.
Additionally, they offer tutorials on how to use their crypto arbitrage tool in order to help you navigate through the crypto arbitrage trading and to fully take advantage of their platform.
KoinKnight offers arbitrages, order book and pump & dump tracking as well as real-time ticker dashboard and is a popular arbitrage tool based in India. They also offer frequent Twitter updates so you can keep track of various arbitrage opportunities while you are on the go.
Their custom made KoinKnight Websocket API allows you to connect KoinKnight arbitrage opportunities with your own trading bot to fully automate your arbitrage process. Additionally, you can keep track of your performance by using their arbitrage historical analysis tool across several exchanges. An example of their arbitrage tracking services can be seen on their website and tested with a demo account.
Alerts can be set at different prices of various crypto market levels such as BTC while also adjusting order size automatically on various exchanges to not miss any crypto arbitrage opportunity.
Established in Estonia in early 2019, ArbiSmart is an EU based crypto arbitrage and investment platform that is regulated by the Financial Intelligence Unit (FIU) of Estonia. They comply with strict AML and KYC regulations in order to safeguard your cryptocurrency holdings.
ArbiSmart offers an automated trading bot that tracks price movement and differences across 35 of the top cryptocurrency exchanges. All you need to do to make money is sign up, get verified, and deposit funds. Next, your funds will be converted to their native RBIS token and used to arbitrage trade. This means your funds will not be transferred to another exchange. Deposit and withdrawal methods for this platform are unique as they accept Swift Bank Transfer, SEPA Bank Transfer as well as Credit cards from Visa and Mastercard.
ArbiSmart does not charge fees directly but keep a part of the profit made using your capital. Additionally, ArbiSmart’s “Live Arbitrage” tool offers to track which exchange offers the best price by scanning their order book.
Overall it`s a fast and effective automated trading platform with good management tools.
Why does arbitrage opportunity exist?
The basics are simple – discrepancies between exchanges exist and always have. Therefore, by buying $10,000 worth of BTC and selling $10,000 worth of BTC on different exchanges, with the exchange rate being lower on the exchange you purchased BTC and higher on the exchange you sold it, you can keep the difference as a profit. This profit is called arbitrage spread.
Furthermore, this can be done with advanced methods such as triangular arbitrage, which we will explain later. That being said, the basic principle is the same – you scan the order book and place a buy order on the exchange that offers a lower rate while selling on the exchange that offers a higher rate.
In cryptocurrency markets, this is specially profitable, since there are several exchanges that have sub-optimal prices. It can be explained by the fact that one exchange might have to comply with different regulations in various regions, while another exchange might not. Therefore, an additional cost and demand for, let`s say, BTC might be higher than normal.
What are the types of arbitrage opportunities?
There are several arbitrage opportunities – most popular being spatial arbitrage (with or without transferring between exchanges) as well as triangular arbitrage. Let`s look deeper into each of them.
Arbitrage with transferring between exchanges
This is the easiest way of arbitrage as it requires to purchase, for example, 1 BTC on one exchange, transfer it to another, and sell it for a higher price.
However, since moving BTC across different exchanges requires time and has additional transfer costs, the difference or spread will likely not be large enough to justify the risk of the sudden price move.
Arbitrage without transferring between exchanges
This arbitrage approach does not require transferring crypto between exchanges and allows you to instantly act on price spread. All that is needed is to hold assets on two exchanges and make a buy and sell order at the same time when the price difference is high enough.
Spreads like these still do exist in cryptocurrency markets as trading fees become smaller, however, the price differences tend to decline. As more traders use cryptocurrency arbitrage and effectively compete against each other, market pricing for cryptocurrencies such as BTC increasingly comes closer to perfect.
Triangular arbitrage does involve more calculation, however, this is why there are many crypto arbitrage tools that automate this for you. The basic principle is that you select 3 cryptocurrency pairs on a single exchange like ETH/BTC, XRP/BTC, and XRP/ETH. Then you trade ETH for BTC, BTC for XRP, and return to the starting point by trading XRP back to ETH.
There, however, has to be a substantial difference in pricing between all three pairs, which is not commonly seen on large exchanges and mostly seen during times of increased volatility. During these kinds of market conditions, your orders may not be executed at the price you have calculated. Therefore, caution is required as there are always additional trading and transfer fees and slippage across cryptocurrency exchanges.
Overall, there are several great crypto arbitrage tools that allow you to take advantage of price imperfections. They offer to place trades automatically without the need to switch between different exchange accounts in order to profit from existing arbitrage opportunities.
There is no single best crypto arbitrage tool, however, the listed ones above are great ways to speculate between two exchanges through a simple app.
Since cryptocurrency markets and the whole crypto space are relatively new, it is likely that crypto arbitrage will keep developing. This means that it is still worth taking a look at each of them and deciding which suits you best.
However, arbitrage trading generates a lot of trading fees, therefore when possible you should try to use limit orders as they are a more cost-effective way to execute trades on most exchanges when compared to market orders.