What is Bitcoin Arbitrage? Bitcoin arbitrage refers to a strategy where a trader can trade bitcoin without exposing themselves to the risks that speculative traders do. Arbitrage is the process of simultaneously buying and selling an asset on different exchanges in order to . Aug 25, · Bitcoin arbitrage is the process of buying bitcoins on one exchange and selling them at another, where the price is higher. Different exchanges will have different prices for Bitcoin, and some people manage to take advantage of this to generate profit out . Sep 23, · Spatial arbitrage. This is making a profit by exploiting the price differences of bitcoin or other digital currencies between two marketplaces.
Arbitrage bitcoin for profitWhat is Bitcoin Arbitrage Trading? | TechBullion
Holding them indefinitely during trading time waiting for arbitrage opportunities could offset trading profits by a substantial margin. So in outlining our strategy here, we will use more of the typical spatial arbitrage. This involves actually sending the asset from one market to another. With the information here you could adapt it to be one of the other types of strategies to your liking. It will be logistically unlikely that you will be able to have a very profitable trading strategy of any kind without writing some scripts or bots.
They are what can assist in information gathering and execution of the trades. This is especially true with arbitrage since you need to make the trades as fast as possible.
So if you are serious about it, it is advisable to learn how to program or use advanced pre-made trading software. Aside from the normal arbitrage conditions stated earlier, with cryptocurrency trading , we will need an additional set of criteria and heuristics.
One of the most common sources for price data is CoinMarketCap. It is one of the first exchange prices aggregating websites in crypto and has over crypto assets listed. However, the free version has limited functionality. Lucky for us, it has well-maintained API wrappers in several languages. Or to follow along, you can go to coinmarketcap. It should look something like this. Here is a short script containing only 3 functions that use the Coingecko API.
What it does is essentially the same thing that we would have to do manually if we were searching for arbitrage opportunities in the markets. It checks all the markets for a given coin or token. Next, it takes the highest price and lowest price, finds the absolute difference, and returns that as a percentage.
The bigger the spread the more profit potential because the spread is your profit minus trading and transaction fees. Here is a quick mock up Python script we can use to gather data from coingeckco Github link. So we will have to manually check these pairs. No way! This may explain why there was such a large spread. And also why no one had exploited this opportunity already. Perhaps markets are efficient and the difference in prices on the two exchanges was simply the discounted, risk-adjusted cost.
Often when a coin on an exchange has its wallets disabled, the market can view it as a risk because it could be happening for a number of reasons ranging from exchange insolvency, a hack of the blockchain or token, or a simple technical issue.
That is if the wallet got reactivated shortly. Market volatility could easily wipe out these gains if you had to wait days or even hours.
I found a few other examples of a large spread which also happened to have wallets that were in maintenance mode. So this seems to be a common false positive that we should look out for. However, if you are a risk taker, maybe it could also be an opportunity to profit as the price should correct as soon as the wallets go out of maintenance mode.
So it appears that simply taking the spot price might be insufficient. I spent some time looking for opportunities based purely on the spot prices and they were few and far between.
I suspect most of the time there were similar issues with the trade that might not be immediately obvious until you actually try to execute it. For instance, such as transaction time or risk similar to that we see in other markets with large price differences, such as the Korea cryptocurrency markets I mentioned earlier. We are going to first look for arbitrage opportunities within an exchange between an asset with several pairs.
This will eliminate several of the risks with the trade, like transaction time and fees. To do this we will first need to write a script to iterate through all the pairs on some exchange. In this example, we will use the public Bittrex API. Our script will not only iterate , but also produce some graphs. Here is one output graph from our new script Github code.
This shows us the prices converted to USD of the different pairs. On the bottom of the graph in orange you can see the size of the price difference. This could then cause the markets to have differences in efficiency, leaving us with opportunities for arbitrage. The graph also gives us a percentage of the average spread right beside the currencies name at the bottom.
Here is a graph with the highest spread out of all the pairs our script analyzes. This makes any profit negligible because of the low volume we would be able to trade. But at scale, it might be profitable more on that later on. On Bittrex, trading fees are 0. Because it would take us 3 trades to successfully execute this type of arbitrage, the spread would, therefore, need to be greater than 0. But our profit would probably be a lot less than that due to market volatility and other risks.
Virtually all the pairs with an average spread greater than 0. Currently, there are about 40 pairs with a large enough spread to potentially cover our trading fees.
Maybe no-arbitrage is right and there is no free lunch. However arbitrage does still appear to be possible, just very very unprofitable. Instead of trading solely Bittrex pairs, we will adapt our script to find the biggest spread between Bittrex and Binance.
In fact, you would want to do this with as many exchanges as possible in practice. Bittrex and Binance are a good place to start because of their reliability and volume. Github code. Ethereum classic has a large spread at times, so this is just one of the pairs that our script produces.
The Rapid Transfer feature also simplifies the experience of transferring between exchanges by automatically getting the deposit address, prefilling out the transfer information, and showing the estimated US Dollar value of the amount being transferred so you can easily tell if you accidentally entered the wrong amount.
Coinigy is a web platform that allows you to view a real-time arbitrage matrix that compares prices for any pair across a large number of exchanges, over 45 according to their website. This allows you to find spreads faster than if you were to try to find them manually, and the matrix-style interface makes it easy to quickly spot the best spread. ArbiTool offers a scanner that compares cryptocurrency prices on various exchanges to help find arbitrage spreads.
ArbiTool has a transaction profitability calculator to help determine if an opportunity is really profitable after fees and such, which is important when factoring in whether or not to try and act on an opportunity. There are still plenty of opportunities for those who are persistent, good luck!
Is Crypto Arbitrage Easy? Related Articles. Subscribe to Blockchain Bites , our daily update with the latest stories. Source: CoinDesk Research.
As volumes rose after UTC Thursday, a spread in pricing between Bitfinex purple and exchanges like Bitstamp yellow created arbitrage opportunities for traders. Source: Coinbase candles on TradingView.
Bitfinex purple and Bitstamp yellow disconnected in price again after UTC. Source: TradingView. Read more about Disclosure The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies.