Bitcoin Arbitrage For Beginners. What Is It And How To Make A Profit?

Business

  • Author Elena Al
  • Published May 3, 2021
  • Word count 935

Despite global pandemic and economic issues, the desire of people to make a profit on digital assets doesn’t diminish. On the contrary, many are getting more interested in cryptocurrency. Have you ever heard about crypto arbitrage?

What is Bitcoin Arbitrage?

Before starting an explanation of what crypto (or bitcoin) arbitrage is, let’s have a look at the word “arbitrage” itself. Cambridge dictionary defines arbitrage as “the method on the stock exchange of buying something in one place and selling it in another place at the same time, in order to make a profit from the difference in price in the two places.” Accordingly, bitcoin arbitrage is the process of buying bitcoins on one exchange at a low price and selling them in another exchange where the price is higher.

Just like there are different foreign currencies and currency exchange offices, there is also a bitcoin exchange which is a digital marketplace. The price for bitcoin on each cryptocurrency exchange can be different, and this is where the arbitrage phenomenon originates from.

The reasons why many are willing to try crypto arbitrage:

Speed and profit. If everything goes well, you might increase your capital quickly.

Over 200 exchanges, hence, ample opportunities.

Less competition compared to traditional markets.

Bitcoin price differences often range from 3% to 5% and can be much wider in some extreme cases.

Possible Barriers to Bitcoin Arbitrage

Crypto arbitrage is still not as easy as it sounds. It’s a complicated process and involves certain risks. When arbitrating you may experience the following problems:

The price of cryptocurrency may change while you’re waiting for transaction verification. Yes, it takes some time.

If you are trading a large number of bitcoins, the verification process will be considerable.

The exchange process is not free. Transaction fees may influence the expected profit.

The transaction volume must be high enough on each exchange, or you may not be able to sell all the currency you bought at the cheaper exchange.

Traders need to research the exchanges before actual trading. Some exchanges with low prices may have technical or trust issues.

Where Does Bitcoin Price Come From?

Normally, the price of cryptocurrency is determined by the last trade occurred on the exchange. There are many bitcoin exchanges, and each of them has a different number of buyers and sellers with various preferences, so exchanges a priori can’t have a fixed price for digital assets, but there is an order book – a list of all the prices that other people are willing to buy or sell the assets for.

Another factor that influences the value of digital coins is the news and global events. For example, last October bitcoin jumped from $7,400 to $10,332 only within two days. Why? Many cryptocurrency market analysts attribute this sudden change to the speech given by China’s President Xi Jinping on October, 25. Although cryptocurrencies were banned in China since 2017, President Xi stated that the country “should seize the opportunity of blockchain technology”, “must take the blockchain as an important breakthrough for independent innovation of core technologies.” As a result, Chinese cryptocurrencies began to rise in price.

How to keep up with the news, track the best opportunities on the bitcoin market, react quickly, and make profitable transactions? It’s possible to do it manually, but arbitraging is about speed and fast decisions. Thereby, you will compete with bots and you may need one for yourself. Otherwise, you are out of the game.

Arbitrage Cryptocurrency Bot

Arbitrage cryptocurrency bot is a tool that assists you in making a profit through arbitrage trading. They surely make your work easier. This bitcoin arbitrage software often provides statistical calculations to search for your potential chances; some bots study your profile and show risks that you may encounter while investing in the exchanges.

Many bitcoin arbitrage bots are available on the crypto market, and they may have different key features. Generally, there are two kinds of bots: the cross-exchange arbitrage cryptocurrency bot and the triangular or cross-asset bot. The first one checks price differences on top of different exchanges, and the second one – on top of one exchange.

Such automated option is in high demand, however, risks are also there. Those who choose to apply arbitrage software must be careful as there are many scammers ready to deceive traders.

Crypto arbitrage process explained

So you’ve decided to try your hand at trading. What do you need to do?

Step 1. Analyze and choose the most convenient and profitable crypto exchanges. Take into account that verification on some exchanges might take several weeks, and a specific minimum deposit is often necessary to begin trading. Most exchanges will also ask you to pass KYC/AML. It’s better to register, verify, and fund your accounts in fiat and cryptocurrencies on numerous exchanges. Once you start trading, it will save you time.

Step 2. Before trying: do as much calculating and planning as possible, evaluate the fees or wallet costs, consider withdrawal and transfer time, market volatility, rules, and conditions. Depending on the country’s legislation, some profits may be taxed.

Step 3. Find crypto arbitrage opportunities by tracking the price of cryptocurrencies on different exchanges. Bitcoin arbitrage bot serves this purpose as well.

Step 4. Take action: continue your trading process or wait for another chance.

As you can see, this process requires a lot of your efforts, knowledge, investment, and a developed strategy. If you decide to join this cryptocurrency race, with the assistance of bitcoin arbitrage software, your chances definitely increase. Take into account all the recommendations, do everything correctly, and you will become a worthy player of the cryptocurrency market.

I am a technology lover, who researches the possible implementations of such novel technologies as Artificial Intelligence, Blockchain, and the Internet of Things. Learn more about arbitrage cryptocurrency bots: https://pixelplex.io/work/cryptocurrency-trading-arbitrage-bot-and-platform/.

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