What is Arbitrage Trading?
Arbitrage trading is the process of buying one coin from an exchange and sell it quickly to another exchange at a higher rate so that you can earn a profit.
So in Arbitrage trading, we have to deal with two exchanges because what we target is the price difference of the coin that we want to trade because each exchange has its own price rates for each coin. It's like you buy a product at a shop at a cheap price, then you sell it to another person at a higher price so that you can earn a profit.
For example,
Let say Bitcoin price in Binance is $37,500 but in Kucoin Bitcoin price is $37,600 so there is a price difference in these two exchanges, that means if we purchase 1 BTC from Binance and sell it in Kucoin we will earn a profit of $100, but if we take away all the fees we may remain with $70 which is not bad! That is how arbitrage works.
Arbitrage strategies.
There are many coins from different exchanges which have price difference and they can generate a good profit to any trader, we just need a strategy so that we can generate a good profit and avoid loss.
- Make a research before trading Arbitrage - We have to make research on different exchanges and coins so that we can be sure we have chosen the right coin and exchange that have a good price difference to generate a good profit.
- Deal with automatic exchanges - Why auto exchanges? We need this type of exchange because they take a few minutes to transfer our coins from their exchanges to another. As we know the price of any coin can change in a minute! So it will be easy to lose a profit if we will deal with manual exchanges because it may take hours for our transactions to complete.
- Deal with small coins in price -We know small coins "in price" are easy to afford, you can buy 2000 XRP easily but not 2000 BTC easily. Though one small coin can give you $0.05 as a profit but imagine if you purchased 2000 or more of them!
- Trade Arbitrage with plans - When you use an auto exchange and a coin with quick transactions it can take only 5 - 10 minutes for your first Arbitrage trade! That means per one day you can complete up to 10 Arbitrage and boost your profit, but unfortunately, that is not a good strategy for arbitrage trading! Just complete 3 - 5 trades, take your profit, and stop trading for that day! Otherwise, you will go out of your plan, and you will lose all your money unexpectedly because we can not avoid losses in trading! Big profit, big risks. Small profit, small risks.
So these four strategies can help you to trade arbitrage in the right way and you will earn a very good profit, though if you have read them carefully you will notice that there can be a loss if you will make a mistake! So be careful and good luck.