Crypto Arbitrage is one of the popular cryptocurrency investment strategies. This strategy helps investors receive attractive profits. However, many new investors still do not understand this term. Learn about Crypto Arbitrage with Crypto Trading in the article below.
What is Crypto Arbitrage?
Crypto Arbitrage is the process of carrying out price arbitrage investment transactions. This means that you will buy and sell a certain Crypto asset on many different markets. From there, profit by taking advantage of the price difference of that asset.
To better understand the concept of Crypto Arbitrage, you can refer to an example below:
A grocery store owner buys cheaper bread at a nearby store. She then sells them in the store at a higher price. In this case, the grocery store owner made an arbitrage transaction on bread on two different markets.
And arbitrage profits will depend on the volume of asset purchases and sales. This profit level will not be high for small business models. But with large forms of business, this difference can reach a very high level. Therefore, it can be said that arbitrage is the least risky form of trading. But Crypto Arbitrage can help traders earn attractive profits.
Arbitrage trading is the result of liquidity and data fragmentation. Currently, solving the problem of price difference is still a difficult story. And the arbitrage profits are getting bigger and bigger, especially with the advent of decentralized finance.
See more: Instructions for using margin effectively for trader
Arbitrage Crypto’s activities
For Crypto investors, Arbitrage is a strategy that helps you make profits from buying assets at a certain price, and then selling them at a higher price. Below is the clearest example of Crypto Arbitrage activity :
- For example, investor A discovers that the price of Bitcoin has changed in two markets.
- Investor A buys 1 Bitcoin at a price of 20,000 USD at exchange X.
- Then, transfer your 1 Bitcoin to another exchange (exchange Y). However, the price of Bitcoin at Y exchange is currently 21,000 USD.
- Thanks to the price difference of 1,000 USD, that investor made a profit of 1,000 USD from selling BTC.
- If additional transaction fees are included, the profit may be less than 1,000 USD.
In fact, many traders will take advantage of fragmented liquidity across investment exchanges in many different Blockchains to perform arbitrage trading. However, to do this requires investors to carry out complex asset swap transactions. Because if the trader calculates incorrectly, when trading the difference, he or she may suffer a loss.
Crypto Arbitrage is not only a convenient tool for traders but also helps increase liquidity in the market. It is also a bridge that helps keep asset prices stable in many different markets. In addition to the price arbitrage process, Margin Trading is also a way to help you receive a higher value.
Arbitrage Crypto Classification for Newbies
Below are the types of Arbitrage in cryptocurrency investment campaigns that you can refer to. Specifically as below:
Spatial Crypto Arbitrage
Cryptocurrency exchanges are located in many different countries. So, you can only access certain exchanges depending on the country you live in. For example, the Coinbase exchange regulates access rights in accordance with US law. Spatial Crypto Arbitrage appears to fill the gap between these zones.
This type of Arbitrage Spatial exists because there are many different views on Crypto investment in many countries. To solve this problem, you can use localized cryptocurrency exchanges and decentralized exchanges.
Exchange Crypto Arbitrage
Performing arbitrage trading at Crypto exchanges is the fastest way to help you access the Exchange Crypto Arbitrage trading method. You just need to buy assets on one exchange, and then sell them on another exchange. The higher the price difference, the greater the profit you will receive.
Funding Rate Arbitrage Crypto
Funding Rate Arbitrage Crypto is a way to help you narrow the gap between perpetual contracts and the real value of assets. When making transactions, Perpetual Traders must pay a certain fee. This fee will depend on whether the position they open is short or long.
Simply put, if the Funding Rate is a positive number, the trader who opens a long position will pay the short side and vice versa. Or traders can simultaneously open two opposing positions in the same block to receive a Funding Fee.
For example, investors open a short position for 10,000 USD and buy 10,000 USD worth of Spot assets at the exchange. At this time, traders do not bear the risk of price fluctuations and receive profits from the Funding Fee if Funding Rate is positive. The profit you receive from this depends on the Funding Feee rate and the volume of positions you are taking.
See more: Opening an Bybit exchange account for traders
Some risks may be encountered in Crypto Arbitrage Strategy
However, in the process of using the Arbitrage Strategy, you may encounter certain risks. Specifically as below:
Transaction fees arise in Arbitrage Trading
During the process of trading Crypto Arbitrage (price difference), you may have to pay many different fees. These fees include transaction fees, withdrawal fees, deposit fees, etc. This number may be higher than the profit you earn if accumulated over time.
To overcome this risk, you should choose platforms and exchanges with low Trading Fees. You can even optimize transactions with large volumes to reduce transaction costs.
Transaction time deviation
Traders must also be very careful in adjusting trading times. Because the price difference transaction when buying and selling will take place at the same time within a certain period of time. You should not use What is a trailing stop to automatically adjust the buying and selling price to avoid losing value during the different transaction process.
In the market, if there are both small investors and large investors participating. This means that carry trades will have some high slippage. You should keep this in mind to achieve the most optimal profits.
Having a risky problem with Crypto Arbitrage Bot
If investors want to get high profits with arbitrage transactions. You need to trade at a high frequency over a reasonable period of time. So, that is the reason why professional investors use Bots to trade.
However, when using Bots to trade, you may encounter certain errors. You may not even be able to operate as desired, leading to loss of investment money. Not only that, programming Trading Bot is also quite complicated and difficult to do.
Information security
Because the process of conducting arbitrage transactions requires a lot of capital and is performed on many different platforms. Therefore, this process cannot avoid the risks of dividing assets when implemented. Therefore, you should use famous and reputable major exchanges in the market when performing arbitrage trading.
Conclude
The above article is all information about Crypto Arbitrage in the most detailed way. Hopefully the above useful information can help you make huge profits. Read more articles at Crypto Trading to better understand the opportunities to earn extra income thanks to Arbitrage.
FAQ
Is Crypto Arbitrage a safe cryptocurrency investment strategy?
Arbitrage can be profitable, but it is not always safe. You may encounter price risks during transactions.
To be able to use Arbitrage in Crypto, what knowledge do you need to prepare?
To perform Arbitrage in Crypto investing, you need to understand the cryptocurrency market. At the same time, you should also learn about other supporting tools and software to track and execute transactions most effectively.
Is arbitrage a faster way to make money?
Arbitrage can generate quick profits in some cases. However, you need to put in more effort to catch the right trading opportunity.
