What Is Crypto Arbitrage?
Have you ever considered the possibility of profiting from the price differences between two crypto exchanges? If the answer is yes, you are looking for an investing strategy called arbitrage. This article conveys the basic knowledge of crypto arbitrage and how to use this strategy to generate profit on Bitget.
There are many cryptocurrency exchanges that showcase varying prices for the same cryptocurrencies at the same time. For savvy and risk-tolerant traders, crypto arbitrage presents an opportunity to gain an advantage over this price discrepancy.
Introduction to Crypto Arbitrage
Suppose you visit an out-of-town friend and go to the local bedb1303-0490-47a3-8088-c0589245aed0. A kilogram of orange costs you US$2 there. The price in your city is US$4. You have the idea to purchase oranges here and sell them for a profit in your city. Crypto arbitrage works in the same way, except instead of oranges, you have to deal with cryptocurrencies like Bitcoin, Ethereum, and more.
Crypto arbitrage involves buying a cryptocurrency on one exchange where the price is lower and selling it on another exchange where the price is higher. The profit made is the price difference between exchanges minus the transaction fees.
For example, you notice that BTC is trading at US$28,000 on Exchange A, but on Exchange B, it is only US$27,800. You could buy one BTC in Exchange B and sell it immediately on Exchange A for a profit of US$200 in a short time (suppose there are no transaction fees).
However, crypto arbitrage trading is highly dependent on market volatility, trade volume, exchange fees, and transaction time. But if you are savvy and keep a close eye on the markets, you could potentially make a tidy profit through crypto arbitrage.
Why are cryptocurrency prices different on exchanges, you may ask?
BTC price between exchanges
Source: CoinMarketCap
The nature of cryptocurrencies is key to understanding the price discrepancies seen between different trading platforms. Since cryptocurrencies are not controlled by any central authority, their value cannot be set at a uniform level worldwide. Instead, market forces of supply and demand establish their prices.
Due to the fact that cryptocurrencies are traded on many different exchanges, supply, and demand can vary between exchanges. If the demand for a particular cryptocurrency on one exchange is high, its price is likely higher than on one where demand is lower.
Liquidity is another factor that influences cryptocurrency prices across exchanges. It refers to the ease of buying and selling a particular cryptocurrency. The prices of cryptocurrencies on exchanges with high liquidity tend to be closer to the global average because they are better able to absorb large buy and sell orders without affecting the price.
Trading volumes also play a role in determining cryptocurrency prices. Higher trading volumes tend to indicate a higher level of interest in the cryptocurrency, which can drive the price up.
The fact that exchanges update their prices at different times can also result in price differences. Some exchanges might update their prices more frequently than others. It can lead to price differences, particularly during periods of market volatility. In addition, different exchanges charge different fees for trading cryptocurrencies. These fees can impact the price that buyers are willing to pay, and sellers are willing to accept.
Basic Types of Crypto Arbitrage
Simple arbitrage (Cross-exchange arbitrage)
This involves buying a cryptocurrency at a low price on one exchange and then selling it at a higher price on another exchange to make a profit.
Example: Let's say the price of ETH is US$1,700 on Exchange A, but it's US$2,000 on Exchange B. A trader could buy one ETH on Exchange A for $1,700 and then sell it on Exchange B for $2,000, making a $300 profit (transaction fees not yet calculated).
Triangular arbitrage
This method involves using three cryptocurrencies to exploit pricing differences across multiple exchanges.
Example: We have three cryptocurrencies, including BTC, ETH, and BCH on different exchanges as below:
| Asset |
Exchange A |
Exchange B |
Exchange C |
| Bitcoin (BTC) |
$50,000 |
$52,000 |
$51,500 |
| Ethereum (ETH) |
$2,000 |
$2,100 |
$2,050 |
| Bitcoin Cash (BCH) |
$220 |
$210 |
$200 |
Assume that you have 10,000 USDT in your account.
Suppose that there are no transaction and exchange fees, you will make a profit of 11,440 - 10,000 = 1,440 USDT.
Statistical arbitrage
This strategy uses statistical models and algorithms to identify price differences among exchanges.
Example: Bitget Strategy Trading is a specialized investment and trading approach that involves leveraging automated bots developed by seasoned strategists and cryptocurrency experts. Bitget Strategy Trading includes Spot Grid Trading, Futures Grid Trading, Spot DCA, Futures DCA, and Spot-auto-invest.
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Cross-border arbitrage
This is similar to simple arbitrage, but the exchanges are located in different countries and regions.
Example: Suppose BTC is trading for US$28,000 on an exchange in Japan but only US$27,000 on an exchange in Switzerland. A trader could buy BTC on the Swiss exchange for US$27,000 and then sell it on the Japanese exchange for US$28,000, making a profit from the price difference minus the currency conversion fees.
Crypto Arbitrage: Risky Business or Safe Bet?
Crypto arbitrage is a low-risk investment strategy. Unlike other trading methods, such as day trading or swing trading, crypto arbitrage does not require traders to predict the price or the market direction. Traders simply buy low and sell high quickly to make a profit. Since the price difference between exchanges is typically small, the profit generated on each trade can be small, but it can be added up over time.
Crypto arbitrage is not a complex trading strategy. All you need to have is a basic knowledge of how exchanges work and the ability to execute trades quickly, meaning an interesting option for beginner traders.
On the other hand, there are some potential downsides to engaging in crypto arbitrage. The main threat comes from the possibility of market volatility. The volatility of cryptocurrency prices over short time periods makes it challenging for traders to make transactions.
Transferring money between exchanges is also an exhausting and expensive process. The fees associated with transferring funds can reduce the overall profitability of arbitrage trading.
How to Make Profit with Crypto Arbitrage on Bitget
P2P Trading
While traditional exchanges offer plenty of arbitrage opportunities, Bitget's peer-to-peer (P2P) offers a unique and flexible trading experience that cannot be found anywhere else.
To take advantage of this method, it is important to have some understanding. By exploring Bitget P2P, you may notice that cryptocurrency prices vary depending on the payment method or local currency of the offer. You can search for a potentially profitable price difference, buy from a user selling at a low price, and then sell to a different user buying at a higher price. Filter your homepage by payment method or local currency to make your search easy.
The best part is that the entire process can be completed on Bitget P2P, eliminating the risks of lengthy transfer times and additional expenses. However, it is important to note that those interested in this method may need payment methods in multiple currencies to execute this strategy.
Check out our beginner-friendly articles on P2P trading:
Strategy Trading
Bitget Strategy Trading is a type of algorithmic trading in which trades are carried out automatically by bots. These bots are programmed to adhere to predetermined plans that factor in market trends, volatility, and individual risk aversion. Traders can take advantage of fleeting market opportunities by employing bots to execute trades quickly and accurately.
Spot Grid | Futures Grid | Spot DCA | Futures DCA | Spot-auto-invest
Check out our Introduction Series to get a good grasp of the strategy trading basics:
Introduction to Bitget Spot Grid Trading
What Is Bitget’s DCA Strategy?
Bitget's Auto-Invest: A Beginner's Guide
Are you ready to take advantage of the crypto arbitrage with Bitget? Register now and enjoy juicy rewards from us!
Disclaimer: The information provided above is not financial advice but for educational and entertainment purposes. Please do your own due diligence or consult a financial advisor before investing in any digital assets.
