Cryptocurrency remains a complex topic for many, with terms like blockchain, cryptocurrency exchanges, P2P, and arbitrage often leaving the uninitiated bewildered. However, this subject has been around for several years, and cryptocurrency arbitrage is a continually evolving practice. The earlier one delves into it, the greater the chances of success.
Today, we'll endeavor to explain in simple language what cryptocurrency arbitrage is, its types, its relationship with P2P, the contents of bundled packages, and what kind of returns one can roughly expect. This is not the shortest topic, so fasten your seatbelts, and let's dive in.
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Cryptocurrency Arbitrage Unveiled:
In less intricate terms, cryptocurrency arbitrage involves profiting by trading related assets at different rates (spreads) on trading platforms.
In simpler terms, it's "buying cryptocurrency at a lower price, selling it at a higher price, and pocketing the difference." Repeat until Dubai (or Moscow) looks like an affordable city.
For instance, imagine your friend needs to buy cryptocurrency and opts for a well-known centralized exchange (formerly Binance) to purchase BTC.
Simultaneously, a seller, more versed in the subject, realizes they can buy more Bitcoin at a lower price from another ad on the same platform using the funds received from your friend. This cycle repeats.
P2P Cryptocurrency Arbitrage:
One of the main advantages of trading cryptocurrency is the ability to transact directly with others, bypassing intermediaries. This is known as P2P trading, representing person-to-person or peer-to-peer.
To engage in P2P trading, you need a P2P platform that brings buyers and sellers together, where one wants to buy cryptocurrency in exchange for fiat currency, and the other wants to sell it.
It operates similarly to conventional exchanges, but the key difference is that you act as your own matured exchange, creating buy and sell ads according to your chosen rates and conditions.
The platform overseeing the trade guarantees its security. Funds from both parties are frozen in a special escrow account until conditions are met.
A designated timeframe is allocated, during which the buyer and seller must confirm their completed actions. Post-confirmation, funds are transferred to their respective cryptocurrency wallets.
Types of Cryptocurrency Arbitrage:
Cryptocurrency arbitrage comes in various types: within a single exchange, across multiple exchanges, and even international exchanges. Let's shed light on differences beyond their explicit names.
Within an Exchange:
Cryptocurrency arbitrage within an exchange occurs on the same platform. This is possible because, even within its confines, there isn't a uniform buy/sell price. Instead, there are several small markets and numerous sellers setting prices based on their own quantity and type of hoard. A common scenario is buying cryptocurrency on the spot market and selling it through P2P because the rates are typically higher there.
Additionally, you can use the method of purchasing cryptocurrency within one platform. For example, if you can't recharge your wallet on Binance with rubles, but you can use any other currency, you can make a profit by converting currencies.
Between Exchanges:
In inter-exchange arbitrage, you purchase cryptocurrency on one exchange, transfer it to another exchange, and sell it at a more favorable price. This price difference is due to the liquidity of assets.
On platforms with high user activity, demand and supply are much higher, and prices are closer to the true market price. On smaller sites, activity is lower, and rates can differ significantly. Usually, cryptocurrency exchange rates on these sites can't keep up with the market.
International Arbitrage:
International arbitrage takes place between exchanges located in different countries. Due to geopolitical and economic complexities worldwide, this could be one of the most lucrative forms of arbitrage.
For instance, you might buy dollars in Russia, send them to a foreign account through a service supporting such transfers, convert them to USDT, then bring them back to Russia and sell them in rubles.
This is just one example of how money moves globally. However, in international arbitrage, it's essential to thoroughly examine all transfer terms and possible commissions across different exchanges to avoid losing the positive rate differential due to these factors.
Profiting from Cryptocurrency Arbitrage:
The method of profit depends on the chosen arbitrage strategy. It is crucial to calculate all operations, fees, and commissions accurately and coldly before starting. Only commence when you've thoroughly researched and are almost 100% certain.
Classic arbitrage involves using specialized software (discussed later) to automate and expedite the process. The basic idea is to buy USDT, BTC, or ETH in the red zone and sell in the green zone. This is because, in this scenario, you act as your currency exchange with your own rates. Different zones usually have different colors, such as in P2P exchanges and dots.
As you gain a better understanding of the process, the schemes will gradually become more complex. It's advisable to start with simpler strategies within the same platform and with an amount of capital you can afford to lose. Treat it as an incremental investment.
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Potential Earnings in Cryptocurrency Arbitrage:
The sky's not the limit, but there's no exact amount. Many factors influence the final profit. The starting amount, rate differentials, the number of successful trades, daily trading limits, etc., all come into play.
In general, a consistent profit of 1-2% in the long run is considered good. In this case, the hit rate for torque bands can exceed 20%.
Structure of Arbitrage Bundled Packages:
The bundled package encompasses the entire cryptocurrency arbitrage algorithm from start to finish, including recharging wallets, buying assets, transferring assets, and all rewards for intermediary services. To trade successfully, a clear understanding of it is necessary.
Due to its straightforward visualization, it becomes evident where to look for, and what remains after paying commissions to all counterparties.
These typically include:
- Sending Bank: Recharges the balance in your crypto wallet.
- Exchange 1: Allows buying and selling cryptocurrencies with fiat.
- Exchange 2: A platform with more advantageous asset rates.
- International Trade Requires: Receiving bank and fiat transfer services.
The bundled package illustrates the basic process. As you gain experience, you can maximize profits by transferring funds through multiple exchanges and banks.
For this, you'll need:
- Russian Bank Card: Standard procedure here.
- Cryptocurrency Wallet(s): Often required for identity verification and KYC procedures on various exchanges.
Profits from the bundle are calculated using the formula:
Profit = (Selling Price - Buying Price) - All Commissions.
When your capital completes a full circle and returns to the initial position on the country map where all arbitrage began, an ideal combination arises. The only difference is that your initial capital will be larger at the journey's end.
A good signal to attempt the entire process is when some currency pairs have commission-free promotions. Such promotions often coincide with holidays and frequently happen on stock exchanges.
Cryptocurrency Arbitrage Tools:
In the technological age, it's peculiar if there aren't tools to make arbitrage or traders' lives easier, freeing them from some monotonous tasks requiring simultaneous attention.
Here, we discuss scanners that monitor currency exchange rates on different exchanges, highlighting the most profitable trades, and robots that automatically open and close trades when currency rates reach specific values.
Top 3 Cryptocurrency Arbitrage Exchanges:
Until recently, Binance was a primary trading platform, but the company decided to exit the Russian market.
Therefore, the choice of one or more exchanges now depends on their type (centralized and decentralized) and trading volume (daily trading in fiat and cryptocurrency usually has limits).
Also, on their presence in the desired market and the currency pairs you plan to trade. If Bitcoin is everywhere, rare cryptocurrencies might be hard to find.
1. CoinEx
This is an ever-improving, multifunctional cryptocurrency platform. Operating for over 5 years, it has proven itself well and entered almost every market.
The exchange features its trading matching solution, a convenient interface (supports Russian), and process security (IP change notifications, two-factor authentication, etc.). The daily trading volume here exceeds $36 million.
If you don't plan to trade more than $10,000 daily, no document verification is required. Recharging wallets is free, and withdrawal depends on the specific currency.
You can trade cryptocurrencies here in spot markets, with leverage (margin trading), derivatives, and futures.
In terms of cons, we note the lack of fiat deposits and real-time online support.
2. Kraken
A very large trading platform with a daily trading volume close to $800 million. It has been in the market since 2011 and is now an international exchange.
According to its creators, its main mission since inception has been to enable everyone to engage in cryptocurrency trading. It has one of the largest sets of trading pairs, totaling around 650, including 30 digital currencies and 5 fiat currencies.
The exchange interface is available in 10 languages, including Russian. Traders and arbitrageurs from around the world use this platform.
There are three types of accounts on the exchange, each with different available features:
- Basic: Unlimited deposits, no access to fiat currencies, margin trading.
- Intermediate: Accessible fiat currencies and their trading, futures.
- Professional: Personal transfer limits, increased margin and API limits, OTC trading.
Verification is required for each type. The higher the account level, the more personal information you need to provide, including your profession and financial statements.
Unfortunately, ruble deposits are not supported, so you need a currency card. Commissions depend on the withdrawal currency.
3. Bybit
The third player topping the list is the Bybit exchange, with a daily trading volume exceeding $1.5 billion and impressive stats: 200+ assets, 200+ derivative contracts, and over 10 million users from 160+ countries.
Here, all major cryptocurrencies are traded, including BTC, ETH, USDT, etc. There's also a fiat gateway through a third-party provider. The platform's aim is to create a transparent, efficient trading platform suitable for beginners and experienced traders worldwide.
Trading can be done without verification, but opportunities will be limited, and restrictions will be more. For instance, you can withdraw a maximum of 20,000 USDT per day and a maximum of 100,000 USDT per month. The more data you provide, the more you can do.
Deposits and withdrawals are only in cryptocurrency form, with no commission for replenishment and no minimum amount.
A demo account is available here, allowing you to familiarize yourself with the features without risking real money. This is convenient, especially for beginners.
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Cryptocurrency Arbitrage Risks:
Like any financial activity, cryptocurrency arbitrage involves risks. They cannot be entirely avoided, but you can try to calculate them. We will discuss risks in this section.
Financial Risk:
Financial risk is associated with the loss of money due to cryptocurrency price changes in the wrong direction during transfers between exchanges. The reasons are usually slow transaction execution.
The only way to balance this is not to slow down, continuously monitor the situation, seek new, more reliable, faster, and cheaper ways to replenish wallets, transfer between exchanges and abroad, and understand all promotions and sanctions affecting arbitrage.
There is a risk that if you trade through someone else's account(s) and successfully complete transactions, there is always the risk that the person will simply change the password and disappear with your money.
Technical Risk:
Technical risk includes everything related to the technical aspects of the operation of trading platforms and intermediary services. If you don't have your exchange, you can't influence them in any way.
No one is immune to server crashes, transactions being stuck in the blockchain, or the internet disappearing altogether.
Generally, if any technical work is underway, it is announced in advance. Such notices should not be ignored, as they can not only help you save money but also save your nerve cells.
Legal Risk:
Legal risks may arise when you decide to do nothing yourself to make money. Just provide bank accounts for other arbitrageurs to trade or, conversely, charge transaction commissions by renting such accounts.
For banks, understanding the source and destination of your funds is crucial. Any suspicious activity can lead to your account being blocked. If at that moment, you have no pending transactions, that's excellent. The solution in such situations usually involves explaining all suspicious transactions to the bank.
In addition, cryptocurrency is still a young vertical with no mature legislative framework. However, everything is gradually moving towards more stringent regulations in the coming years. The likelihood of getting into legal trouble will be higher.
In conclusion, cryptocurrency arbitrage is an excellent method to increase capital. With low entry barriers and an increasing number of trading platforms, the advantages outweigh the risks.
Many in this field not only feel secure under sanctions but also within the entire Russian context. To attempt making money through arbitrage, you don't need to invest a significant amount immediately.
Instead, start by conducting all transactions with small amounts in real trading and gradually increase the volume. However, only after you have a comprehensive understanding of how the cryptocurrency market operates.
All necessary information is freely available, but you must invest time in studying it. Like arbitrage itself, you can't engage in it within 1-15 minutes before bedtime. It's a full-time job.
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