An overview of Automated Arbitrage Crypto Trading

Posted by Shyni on March 31st, 2023

Crypto arbitrage trading offers the perfect opportunity to take advantage of this situation.

If you are familiar with cryptocurrencies, you will agree that cryptocurrency trading is still in its infancy with various markets spread across the globe. Cryptocurrency arbitrage is a tactic where cryptocurrency traders maintain their handles to take advantage of differences in exchange rates.

Traders buy cheap currency and sell it at a higher exchange rate. This concept sounds attractive; however, there are some drawbacks that you should be aware of before entering the market.

Now, let's get into…

Put, arbitrage means buying and reselling. You buy an asset in one market and sell it in another to profit from the price difference between them.

Crypto arbitrage is a live arbitrage. This is possible due to the difference between two separate markets with unequal trading volumes. A market with high trading volume is generally known to have a tight spread when it comes to the liquidity of a particular currency. In fact, the opposite is true for a market with low trading volume. Such a market would have a wider range for the currency due to its limited supply.

Technically, automated arbitrage trading helps a crypto trader, for example, when looking for a cheaper coin on Binance than on Bitfinex. If you spot an opportunity, you can buy the coin and simultaneously sell it at a higher price on Bitfinex and make a profit. Interestingly, this concept is not new in the forex market. Bond, stock, and forex traders know it well.

The contemporary cryptocurrency market offers a variety of arbitrage opportunities. With some market inefficiencies, transient increases in trading volumes result in subtle price differences. Usually, the most prominent exchange with the highest liquidity controls the prices of a currency.

With arbitrary price increases on one exchange, others follow suit. However, the response of other exchanges is often slow and this creates the desired arbitrage opportunity that traders have to make their move.

How is arbitrage trading carried out?

The basic approach to cryptocurrency arbitrage is to place your trades manually; Monitor the markets for price divergence, trade, and shift your funds accordingly.

Interestingly, technology has brought us cryptocurrency arbitrage 'bots' that allow you to track prices across various markets while keeping your hands clean.

Types of Arbitration

There are two different types of space arbitration, the most important of which are:

       1. Arbitrage betting

       2. Tripartite Arbitration

       3. Statistical arbitration

These three arbitrage techniques are very familiar and widely practiced by traders in the crypto world.

Here are some tricks to help you

Doing these long and complicated calculations can be very stressful and tiring. An efficient way to do this is to leave these calculations to arbitrage bots and let specialized software solutions do the heavy lifting for you.

"Crypto Arbitrage Calculator" is a tool designed to get the job done effortlessly. It provides real-time arbitrage opportunities to the retailer. Often these calculators are sold by third-party vendors on various platforms for a fixed fee. Still, others are available for free download.

In addition to these calculators, there are other programs that can be used to give you optimal results. We recommend testing the software first on a demo account to avoid losses due to incorrect or overloaded settings.

Also, it is better to try several solutions before settling on the best one.

Does it really work?

Man's head with numbers and business chart in the background. Many wonders if these things we preach are real. Well, we've been in this business for quite some time and we can confidently say that they "have."

One of the reasons why people fail to take advantage of these opportunities is because they are passive investors or these temporary opportunities appear on the horizon. Triangular arbitration is highly feasible if set up and operated in the appropriate environment, although we acknowledge that it is not that simple. If that were the case, the streets would be flooded with millionaires.

Conclusion

This article leads us to the conclusion that arbitrage is a seemingly sophisticated, but inherently simple technique for exploiting price discrepancies in different transactions or markets to make a profit. It's worth remembering that market prices will equalize once traders begin to exploit price inefficiencies.

Bitfinex may already be slow to react to the changes in Binance, but they are sure to try to close the gap. This is why proactively responding to changes is vital to profitability for anyone involved in crypto arbitrage.

Since the arbitration opportunity is only available for a short period of time, a quick and focused response is key to success. Arbitrage is a great way to realize potential gains by making efficient use of exchange rate differences in the currencies involved. Join hands with the best and licensed crypto investment company today!