What is Arbitrage Trading？
Arbitrage Trading is the traders subtle way of making daily profits which involves exploiting the market variations for a particular Crypto currency across the different exchange Market. It entails buying lower from a particular exchange offering a very low price for a particular Crypto currency and transferring same to a different exchange where the same currency is sold at a higher price at the moment.
Thus as the name implies, Arbitrage trading is the easiest way of trading and one of the most common among Nigerians. In this case you simply buy a particular asset or Crypto currency such as Bitcoin and any altcoins on one exchange at a very low price and proceed to sell same immediately at a higher price on a different exchange.
Why is Crypto currency Arbitrage trading a very Lucrative Trading？
There are many sweet reasons why traders engage in Arbitrage trading. Some of these reasons include below:
Quick profits: Arbitrage trading offers a very quick profits to the trader with low risks. Thus if everything goes according to the plan, its a plausible way to increase your capital. You simply earn higher values on your investments by buying lower from a given exchange and increasing same by selling higher on a new exchange. Here given the swiftness of blockchain technology, the trader makes good money within an instant.
Guaranteed Returns: Here the returns are guaranteed provided the transactions are carried out properly on reliable exchanges and the price variations fully ascertained before carrying out such transactions.
Why are there often differences in Market Price (Arbitrage) across the exchange market？
The major reason for the differences found in market prices across the exchange is based on the trading volumes. Most of the popular exchange produce very high trading volumes that either increase or diminish the market prices of a given asset so fast before it reflects on other minor and unpopular exchange. Experienced traders have mastered the usual moments for this variations and utilizes it to maximize their profits.
Furthermore, another reason why this occurs is based on the strong volatility of some assets such as Gold, Bitcoin and Altcoins. Since most exchanges dont share information and work on their own. Many Crypto currency especially Bitcoin and Altcoins often experience many quick rise and sharp drops, which leads to price disparities and profitable arbitrage opportunities for traders.
More so, Greater Arbitrage opportunities are seen in the crypto market on the days when a particular Crypto currency is listed for the first time in an exchange. This is due to high concentration of traders coming to trade on such exchange on such days.
To our interest, the price difference for some assets including Cryptocurrency often experienced in the market tend to range from 5% to 10%, and sometimes reach up to 40–60% (in extreme cases).
How to find arbitrage opportunities between exchanges.
Most arbitrage opportunities emerge when comparing smaller exchanges with larger exchanges. This is because the trading volumes vary across these exchanges.
We will cite an example of arbitrage trading using the two exchange such as: Gemini.com and Kraken.com exchanges.
Step 1 — A trader buys 1 BTC at a price of 63,100.10 USDT on the Gemini.com exchange
Step 2 — The trader transfer 1 BTC to Kraken.com exchange.
Step 3 — The trader sells 1 BTC at a price of 67,200.30 USDT on the Kraken.com exchange (exchanging to USDT)
At the end of this transaction the trader makes a profit of 4100.20 USDT. After all these steps, the trader transfer back the whole USDT to the Gemini exchange or any platform / wallet and begins a new transaction.