The cryptocurrency market is, therefore, a market that should auto-arbitrate on each platform of purchase or exchange of cryptocurrencies. There is arbitration to take advantage of when a cryptocurrency can be bought or exchanged on a cryptocurrency exchange or purchase platform for a price lower than the sale or exchange price on another platform.
How to arbitrate cryptocurrencies?
To perform the arbitration used as an example, you would have needed:
- Have an account open on the two exchange platforms;
- You need to get BTC in Binance and then buy GAS;
- Transfer the GAS to Gate.io;
- Sell the GAS in Gate.io at the price of 0.00457098 BTC.
Another solution would have been possible if you had already had GAS in Gate.io and BTC in Binance. Sell the GAS that were already in your possession in Gate.io and buy it in Binance (against BTC);
Buy the GAS initially sold in Gate.io and sell the GAS purchased in Binance (only when the price has been balanced).
This second solution responds to the rule of a “real” arbitration, which would consist of buying and selling at the same time.
What cryptocounts will arbitrate?
The main cryptocurrencies are difficult to arbitrate, since they are more liquid than the altcoins, less price difference is created in the different platforms and, if there is a difference, it is compensated very quickly.
It is easy to assume that automatic arbitration solutions were implemented in the main cryptocurrencies. A small robot that would control automatically if an arbitration should be done in the exchange platforms. We could also imagine that the exchange platforms arbitrate their own price based on the price quoted in other platforms.
In which platforms arbitrate cryptocurrencies?
To guarantee cryptocurrency arbitrage, I advise you to only work with exchange or purchase platforms for large cryptocurrencies, known and widely used by crypto-traders. In this way, you will have all the liquidity and a good spread to liquidate your arbitration.
Only the cryptocurrencies commonly quoted on the selected exchange platforms can be arbitrated. I mean that to perform an arbitration of a crypto currency X against Bitcoin, it is necessary that this X crypto currency against Bitcoin quotes on all exchange platforms.
What is the risk in arbitrating cryptocurrencies?
Although arbitrating cryptocurrencies seems easy at first glance, however, do not underestimate the risks. The main risk comes from the volatility of cryptocurrencies and exchange risk. In fact, if the purchase and the sale do not take place instantaneously (see solution 1, in the section: “How to arbitrate the cryptocurrencies”) there is a risk of seeing the arbitrated cryptocurrency fall. You will buy the cryptocurrency on platform 1, and then transfer it to platform 2. During the transfer time, the arbitration can be canceled or, even worse, the cryptocurrency can be depreciated.
Some tips before you launch cryptocurrency arbitrage:
• Make sure you can transfer the cryptocurrency easily and quickly between your two exchange platforms;
• Check the quantities available in the order book on the two exchange platforms. If it is possible to buy 100 units on platform 1, it is not necessarily at a good price on platform 2.
• Pay attention to the wallet to wallet transfers. Making arbitrations is multiplying these transfers and, therefore, the risk of transferring a cryptocurrency to a wallet that cannot receive it, or the risk of error when entering the public address of the wallet.
• Think about transaction or transfer expenses. Although, in general, they are very low in the different exchange platforms, they must be taken into account in the arbitration operation. When dealing with the arbitrage of an operation consisting of taking advantage of small contribution differences, it is important that these differences are amply superior to the transaction and transfer expenses (if not free) of the cryptocurrency in question.