The difference in the price of a commodity between two or more markets creates an imbalance that can be capitalized by making a combination of matching deals. Arbitrage is simply trading on assets in different markets in order to take advantage of the price difference of the same assets. One of the assets used in arbitrage trading is cryptocurrency. You can buy and sell different cryptocurrency products in different markets at different prices. For example;
In the above market rates for bitcoins and US dollars, one can buy bitcoins in market X at $20,000 and sell in market Z at $25,000 making a profit of $5,000 from one bitcoin. Cryptocurrency arbitrage is a risky business because of the wide swinging prices. It requires much keenness to read market price fluctuations and make decisions on market prospects.
In order to take part in cryptocurrency arbitrage you need to deposit cryptocurrency in as many exchange markets as possible and be ready to buy and sell so that you can take advantage of prices in any exchange platform. The larger the price difference the bigger the profit. When taking part in cryptocurrency arbitrage you have to be conscious of the trading fees or else you will make losses. The profit you prospect from the arbitrage should be able to cater for the trading fees. For instance if you make a profit of $250 yet the trading fee is $350 you will have made a loss of $100. It is always advisable to factor in the trading fee in the calculations before carrying on with the trade.
One of the biggest challenges cryptocurrency arbitrage traders face is the transfer of money and cryptocurrencies to the bank and between exchange platforms respectively. The best way to get around this is to have some float money and cryptocurrency on the exchange platforms. This will help the trader save time by skipping the step of transferring money between banks and cryptocurrencies between exchange platforms. Moreover, this allows you to make a trade immediately if you spot an opportunity. It is advisable to check on the fee structure of each arbitrage platform since some charge even withdrawal fees which may end up reducing your profits.
There are a lot of security checks when making cryptocurrency exchanges that can result in a lot of fees being charged. In order to minimize these fees you can match your transactions such that orders are executed immediately; carefully check the fiat withdrawal fee; use wire transfers instead of credit cards; use exchange platforms with minimum or no crypto withdrawal fee and have deposit accounts.
In general, in order to make maximum profit a trader in cryptocurrency arbitrage should register in as many exchange platforms as possible in order to be able to spot maximum price differences. Should be aware of different trade exchange fees and withdrawal fees and should set up his or her account to enable real time transactions. Cryptocurrency arbitrage is a profitable trade that requires keenness and good decision making skills. It requires a level of proficiency to be able to make maximum profits.