For quite some time i have been following cryptocurrencies and doing some trading, while watching coinmarketcap.com i noticed how the same cryptocurrency can have different prices on different markets/exchanges. This made me very curious and decided to develop an application to connect to several exchanges and compares the pairs across several exchanges for any profit, the results were quite impressive, even tough Arbitrage is nothing new on the market this has exist mostly in Forex market, but on cryptocurrency there’s still quite some advantages due to the volatility of cryptocurrencies and newer to the market compared to the old markets such as stock exchange and forex.
What is Arbitrage all about?
Arbitrage is the process where you can buy a currency/asset for a lower price in a market/exchange and sell higher on other exchange/market. A practical example you could buy euros in a specific exchange for a lower price and sell those euros on another exchange where is trading for a higher price. In this case we are talking about cryptocurrencies and these opportunities can be find several times a day.
How to do Arbitrage?
As explained earlier pretty much the intention is to buy low and sell high, with cryptocurrencies to buy on one exchange and transfer to the exchange where you can sell higher this can take some time, if you bought bitcoin this can take several hours to a day to be available on the exchange where you plan to sell and by that time the arbitrage opportunity is likely to be no longer available , now if you use ethereum it could be a lot faster but still depends on each exchange how fast they decide to make these transfers. You need to understand that most of these strategies are well known on the the markets and these opportunities will disappear quite fast.
Enough talk how you could make a profit , one of the strategy is example you want to trade Bitcoin with Dollar so you have Bitcoin and Dollar in one exchange/market and the same exact amount on another exchange. If you detect an arbitrage opportunity then you can on the 1st Exchange buy Bitcoin and simultaneous you sell Bitcoin for dollars on the 2nd exchange, what will happen here is you had bitcoin and dollars on the 1st exchange and since you found an arbitrage opportunity on this exchange you have only bitcoins while on 2nd exchange you only dollars and you made your profit, then the other process is to balance your accounts so each exchange has the same amount of Bitcoin and Dollars.
Let’s put this into practice:
Exchange A you have 1 btc worth 7000$ and 7000$
Exchange B you have also 1 BTC and 7000$ but the Bitcoin (BTC) in this exchange is trading at 7300$
Now on Exchange A you buy 7000$ woth of bitcoin which in the end you will have 2 Bitcoins
On the Exchange B you sell 1 Bitcoin for 7300$
Conclusion: now you have 2 BTC on exchange A and on exchange B you have 14300$ (7000$ USD + 7300$) = 14300$, and then you balance the amount of bitcoin and dollars on each exchange. So on each exchange you will have 1 Bitcoin and 7150 dollars on each exchange, making a 300$ profit , 150$ extra on each exchange, and you continue to do the same over and over as you see an arbitrage Opportunity.
This is one of the ways you can make a profit from Arbitrage, you can find the the cryptocurrency Arbitrage application i made available now on IOS and Android you can search on the Play store and App Store for: ArbitrageApp , let me know your comments and feel free to give your comments.
Next time i will explain another Arbitrage Opportunity.
Stay tuned
Wish you a great weekend
Pedro Mendes