What is the concept of Crypto arbitrage and how it works

By | January 27, 2022

Crypto trading has come a long way and lots of traders are involved in that. It is now not an easy game to make profits in the short term. Explanation and definition of bitcoin can increase crypto volatility and affects profit margins in the long run. Still, some traders make money even after that much competition. It makes sense and is a chance for other day traders to make profits in crypto trading. Although it is not that easy, doing experiments with your trading skills does not seem harmful. 

There are a lot of ways used by traders and even expert traders to make quick money. One of these ways is crypto arbitrage. This is not a quick rich scheme but a way to earn money by understanding the price difference in crypto exchanges and to make money out of that. Somehow, it is not an easy process nor very technical. Before getting deeper into crypto arbitrage, you need to understand the concept of crypto arbitrage as well as how it works to make high profits. 

In this article, you are going to learn about crypto arbitrage and how to use that for gaining higher profits. So, let’s get into this crisp and clear piece of information and start making money by crypto arbitrage. 

What is Crypto arbitrage? 

Cryptocurrency is a volatile currency, the price of different tokens keeps changing and that too happens while trading. The price of the same token seems different on different exchanges and that raises a chance to earn through crypto arbitrage. While trading when the price of a token is different on two exchanges at the same time. Traders buy the token at a low price on one exchange and sell that token on another exchange at a higher price and that margin in price is the profit of the trader. This is pretty much the concept of crypto arbitrage. 

This process is not that simple. There are hundreds of decentralised and centralised exchanges on which thousands of traders are active at a time. Most of them are looking for a chance to earn through crypto arbitrage. So, all this process of buying and selling a token from one exchange to the other happens very fast. If you could not make it at a certain time, you would lose your chance. Mostly in big exchanges, there is a proprietary price discovery system that helps in discovering the opportunity for a crypto arbitrage. 

There are different types of crypto arbitrages available which work differently but pretty much do the same thing. Being a trader this is your job to keep looking for the opportunity for crypto arbitrage and take action in the meantime. After getting a slight knowledge about the concept of Crypto arbitrage, let’s get directly into how this works for the traders. 

How does Crypto arbitrage work? 

Crypto arbitrage is earning from the difference in tokens on different exchanges but it might follow a process. The first step is to pick your strategy as there are many available strategies. If you are a coder and know computer languages, you can go for any of the strategies based on your preferences. If not, then you can from manual arbitrage, this too works best. After picking up the strategy, choose a token, here is a bonus tip. Always go for liquid pairs and tokens because for the obvious reason that is volatility. 

You need two accounts on two exchanges and then stick to your computer screens and keep looking for the asymmetry created in the market. Buy the tokens at the lowest price from one exchange and then sell them to the different exchanges at the highest price. In most cases, the price difference is not very high but you get some percentage of profit. 

Concluding notes

Crypto arbitrage is a good way to earn profits for traders but you need to be very active while working on the process. This process is not very possible without bots, so you have to keep that in your mind too. Always work on the asymmetry created in the market before the market works on that asymmetry. Keep an eye on the market depth, trading fees, and other important factors in your mind to make good profits in crypto arbitrage. All these factors in some way have an impact on your profits. 

Category: Crypto

About Safdarali Rizvi

Safdarali Rizvi the management graduate. Has been an avid book reader all his life so naturally loves playing with his words. His curiosity for discovering futuristic opportunities lead him to explore the world of cryptocurrencies. He has a real passion for calisthenics and sports. His management abilities and hunger for learning brings tremendous value to our team.

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