Arbitrage is as old as commerce. Successful traders have always taken advantage of a difference in price of a particular commodity across different markets, since such occurrence began, and made a profit from it. Investors who deal with crypto have financial brokers to thank for making it a possibility for them as well.
Although the art of investing with borrowed money in order to make a profit may sound easy, learning how to make money from Crypto Arbitrage remains the first step to actualizing this dream. Savvy investors have always followed the steps explained below:
1. Simple Arbitrage: Since money is only made when crypto transactions are performed across different financial markets. With over 180 exchanges across the globe, this should not pose any challenge, really.
Simple arbitrage does not take time to complete. All an investor needs to do is monitor different markets for any possible difference in the price of a particular cryptocurrency. As a tip, it is preferable to register in big and small crypto exchange markets respectively. The reason being is that big crypto markets react faster to changes in price than smaller ones following the volume of transactions involved. Simply buy crypto in a market that sells at a lower price, have it transferred to a market where the price is higher, and quickly sell for a profit.
2. Triangular Arbitrage: Investors in crypto that apply this tactic take it a step further than Simple Arbitrage supports. Instead of trading on a single cryptocurrency alone, such investors leverage any difference that arises between the three currencies across different financial markets. As complex as it may sound, this strategy is simple to execute so long as each transaction is considered separately.
For instance, by using a fund obtained from a broker, an investor can buy a currency and have it sold in another currency to make a profit before reselling it back to the original currency that the entire transaction started with. This way, advantage is taken of the difference in price that each currency has in order to maximize the profit made.
3. Convergence Arbitrage: This third strategy also ensures that investors who engage in crypto arbitrage make a profit. After a careful study of different financial markets, an investor buys crypto in an exchange where it is undervalued. The next step is to transfer the currency to another exchange where it is overvalued and short-sell it.
Profit is made when both prices reach an equilibrium point. At this stage, investors pocket whatever amount that results from this convergence. It may sound a little more complicated than the first two but they all ensure that a profit is made using borrowed funds.
The beauty of crypto arbitrage lies in the fact that this currency is in its infancy stage. Throw in the unregulated and disjointed market factor and it becomes easy to understand why prices are volatile. Savvy investors are simply taking advantage of the volatility in price to make a profit.