Crypto Arbitrage: Everything You Need to Know to Profit

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, and 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?

Here are some potential explanations:

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 — many target different types of investors or different countries, which can affect prices.

Withdrawal and deposit times. Exchanges with slower processing times take longer to catch up with the overall market rates (often smaller exchanges). Foreign exchange rates. If you’re really smart, you might even be able to generate profits by buying crypto at one exchange rate and selling it in another, allowing you to secure a profit if it’s relatively cheaper in one currency.

Three main types of arbitrage 

Spatial Arbitrage

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”). 

Convergence Arbitrage

If you’re opting for the even more complicated triangular arbitrage, you’ll basically just need to do a more complex version of the above methods by transferring between three different cryptocurrencies instead of just two. 

Triangular Arbitrage

Cryptocurrency arbitrage can certainly be profitable. As long as price differences exist (which they certainly do), there will be a way to make money. 

Is Crypto Arbitrage Profitable?

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