Cryptocurrencies dominated news headlines last year and continue to remain popular as “new age” investment vehicles. If you still haven’t bought any, then it is time you crawled from under that rock!
Cryptocurrencies can be bought and sold on online exchanges such as Binance and Bittrex. Each currency is listed at a certain value based on demand and supply variable specific to that exchange. This leads to a disparity, or imbalance, in prices for the same coin, thus leading to arbitrage opportunities.
If you are keen on making the most of your crypto investments by capitalizing on arbitrage, then read on!
• Monitor Markets
There is no better way to gain on arbitrage than by self-monitoring the markets. Keep an eye on the prices for the same coins on two or more exchanges. As soon as you spot a price differential, move or transfer your funds/coins accordingly. Have all your resources ready and remain alert so that you do not waste any time and take quick action. Download the mobile app, so that you can monitor the markets on the go. If you do not have the time or patience to monitor the markets manually, then consider using bots designed to automatically track price movements.
• Understanding the Arbitrage Strategies
There are three types of arbitrage strategies that can be carried out, as explained under
A simple arbitrage refers to purchasing a coin on one exchange and selling it on another exchange. The basic idea is to buy low and sell high.
Triangular arbitrage helps you exploit price variations among three different currencies. For example, you can buy Ether or Bitcoin using pounds and sell it in dollars and exchange the dollars back to pounds. This allows you to capitalize on price differentials in three different ways.
Convergence arbitrage can be carried out on the same exchange or multiple exchanges. The idea is to buy a coin that is undervalued on a particular exchange and sell it on another one, where it is over-valued or wait for the price to catch up on the same exchange, as its purchase. Considering how fast crypto prices move, this can take anywhere from a single day to a week based on price market momentum.
But hold on! There are a few things to bear in mind before you run off to exploit arbitrage opportunities.
• Each exchange charges a fee, which usually means a small percentage of your coin is clipped when it is moved around. You must make exact calculations to ensure it does not eat away into your profits.
• Timing is critical. The crypto market is extremely volatile and anything can happen in a matter of minutes. If the prices move against you then you might end up taking a loss.
• Transfer time varies from exchange to exchange depending on the volume of coins being moved. You should acquaint yourself with a few basic concepts such as confirmations and how long it can take to confirm your coins.
The cryptocurrency bubble is unlikely to burst and there are still arbitrage opportunities waiting for you. So, without wasting any more time, go hit that exchange and make some money while you still can!