Crypto Arbitrage || How To Make Low-risk Gains, Learn Trading Strategies & More
Arbitrage opportunities are becoming more and more prevalent in the crypto sector and offer traders an attractive way to maximize their gains with comparatively less risk.
Cryptocurrency arbitrage is a type of trading strategy where investors make most of the slight price discrepancies of a digital asset across multiple markets or exchanges.
In simple terms, crypto arbitrage trading is the process of buying a digital asset on one exchange and selling it simultaneously on another where the price is higher.
Doing so helps in making profits through a process that involved limited risks. The other advantage of this strategy is that one need not be a professional investor with an expensive set-up to begin arbitrage trading.
What is arbitrage trading?
The crypto market is renowned for being highly volatile compared to other financial markets. There seems to be more hype surrounding the potential of arbitrage opportunities in the crypto scene. Crypto asset prices tend to deviate significantly over a certain time period. Since they are traded globally across hundreds of exchanges 24/7, there are far more opportunities for arbitrage traders to find profitable price discrepancies.
All that traders need to do is spot a difference in the pricing of a digital asset across two or more exchanges and make a series of transactions to take advantage of the difference.
Why is cryptocurrency arbitrage considered a low-risk strategy?
Unlike day traders, crypto arbitrage traders do not have to predict the future prices of bitcoin and other cryptos. Nor do they enter trades that could take hours or days before profit generation. By spotting arbitrage opportunities and capitalizing on them, traders expect fixed profit without having to necessarily analyze the market or use other predictive pricing strategies. Also, depending on the resources available, traders can enter and exit an arbitrage trade in seconds or minutes.
Types of Arbitrage
- Spatial arbitrage: This type of arbitrage involves purchasing crypto from one exchange and immediately selling it on another.
- Convergence arbitrage: Here, a trader purchases coin bought on one exchange and sells it on another exchange. The goal is to see both prices converge, which is when the trader closes both positions.
- Triangular arbitrage: This complicated strategy involves trading across more than one trading pair.