Cryptocurrency is the hottest thing in finance, and it’s not likely to be cooling off anytime soon. But for those who aren’t traders by trade, there are still ways to make money from cryptocurrency by other means.
For example, many beginners have turned a profit through crypto arbitrage—buying low on one exchange and selling high on another. Of course, it can be risky if you don’t know what you’re doing.
However, with some knowledge and a little cleverness (and maybe even some *basic* coding skills), anyone can make money doing this simple strategy. So if you’ve ever wondered how crypto arbitrage works or why you should try it out, we’re here to help!
What is crypto arbitrage?
Arbitrage is the process of buying and selling securities on different markets to profit from a difference in their price. Crypto arbitrage is the same, except it involves cryptocurrencies rather than stocks or other traditional assets.
In crypto arbitrage, you search for price differences between two or more exchanges (online marketplaces for buying and selling cryptocurrencies). When you find a difference between prices on these exchanges, you buy coins at one exchange and sell them at another exchange.
You then repeat this cycle as often as possible until your profits reach a point where they’re no longer significant enough to warrant further investment into that coin’s current market value (this happens because, eventually, one of those coins will move up significantly in value).
How does crypto arbitrage work?
Crypto arbitrage is buying and selling cryptocurrencies on multiple exchanges to profit from price differences. The difference between the spot price and the price you can sell at is called the spread.
For example, suppose you buy Litecoin for $100 on one exchange and want to sell it for $108 on a different platform. In that case, there’s an opportunity for arbitrage because this means that someone who sold their Litecoin at $108 will be willing to purchase it back from you at a lower rate than they previously bought it at—this is creating a “bid/ask” spread.
The difference between two asset prices is called arbitrage: if the price of Bitcoin is higher in Japan than in South Korea, then someone could buy bitcoin in South Korea and sell it in Japan, earning some money along the way.
However, while this works well over short periods (days), it’s not so easy when dealing with foreign currencies: many variables, like interest rates and political instability, affect prices on both ends of your transaction—so don’t try anything too risky!
Where can you find price discrepancies?
Price discrepancies for cryptocurrencies exist on different exchanges. So if you want to make money, you must find those discrepancies. The easiest way to do this is by using a crypto arbitrage calculator.
This online tool allows you to enter the price of a coin on one exchange. Then it will show you all the exchanges where you can buy or sell that same coin at a higher or lower price, allowing you to take advantage of the discrepancy between them while also making a profit.
There is often a difference between what customers pay for Bitcoin when they trade it against their own tokens (BNB) versus what they get if they trade their other tokens against Bitcoin (BTC). The most common example is when BTC prices fall below $10k on Binance but rise above $11k elsewhere; this creates an opportunity for arbitrage traders such as yourself!
Binance often uses a 5% spread when it comes to trading fees. That means that if you buy or sell at a price within 5% of the market rate, Binance will not charge any fees on top of what they already offer. However, if you exceed this limit, you’ll be charged 0.1% for every 1% above the market rate.
How to compare exchanges?
There are a few ways to compare exchanges to find the best price.
Use a crypto arbitrage tool: There are many tools available, most of which are free. You can search for “crypto arbitrage” in your web browser and find one that matches what you’re looking for in terms of features and ease of use.
Use a crypto arbitrage calculator: A calculator is similar to a tool, but it’s generally easier to use because it gives clear instructions on how much money you’ll make if you buy cryptocurrencies at low prices on one exchange and sell them at high prices on another.
Use a crypto arbitrage bot: Bots automate trades across multiple exchanges without human intervention (often without paying attention). If bots become popular enough, this could cause problems with market manipulation—but until then, they can be helpful if used responsibly! The term “arbitrage bot” is sometimes used interchangeably with “trading bot.” However, there are some distinctions between these terms, which we’ll discuss later in this guide when we talk about different types of automated traders today, including those who call themselves “arbitrage bots.”
Crypto Arbitrage Considerations
In the world of crypto arbitrage, there are many factors to consider. It’s essential to think about fees, the time it takes to buy and sell coins, and whether there is a risk of market fluctuations. You should also consider technical issues like exchange hacks or exchange shutdowns.
However, there are some things you can do to help reduce the risk of crypto-arbitrage. Make sure to always have some cash on hand for emergencies. You never know when a hack could occur, or an exchange might shut down unexpectedly.
The adage “buy low, sell high” still holds true when it comes to investing. But with crypto arbitrage, you can buy low and sell high on multiple exchanges at once. The key is finding opportunities where prices are different across exchanges and taking advantage of those differences by buying on one exchange and selling on another.