Crypto Arbitrage: Everything You Need to Know to Profit
Ready to take your cryptocurrency investing to the next level and take advantage of the constant price movements?
What Is Crypto Arbitrage?
Simply put, crypto arbitrage means buying cryptocurrency on one exchange and selling it for a higher price on another exchange, allowing you to make a profit.
Types of Arbitrage
Spatial arbitrage. This type of arbitrage involves purchasing crypto from one exchange and immediately selling it on another for more money. Convergence arbitrage. Here, a coin bought on one exchange is sold short on another exchange. The goal is to see both prices converge, which is when arbitrageur closes both positions. Triangular arbitrage. This is the most complicated strategy and involves trading across more than one trading pair.
Why is Arbitrage Possible?
- Variations in liquidity. Every exchange has a different amount of liquidity for each asset, depending on how many people buy or sell it. - Different exchange types. Not all exchanges selling cryptocurrencies are the same - Withdrawal and deposit times. Exchanges with slower processing times take longer to catch up with the overall market rates (often smaller exchanges).
If you opt for spatial arbitrage, you’ll buy crypto on one exchange, transfer it to another exchange, then sell it on the other exchange. Alternatively, you could avoid having to transfer your crypto by simultaneously making the purchases on both exchanges.
This type of arbitrage involves a long/short trade. Here the arbitrageur buys underpriced crypto (“long”) and simultaneously sells overpriced crypto (“short”).
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