Bitcoin arbitrage refers to a strategy where a trader can trade bitcoin without exposing themselves to the risks that speculative traders do. Arbitrage is the process of simultaneously buying and selling an asset on different exchanges in order to profit from the difference in prices on the exchanges. For instance, if a digital asset is trading at $160 on one exchange and $158 on the other, the trader can buy on the cheaper exchange and sell on the other one thereby making a profit of $2 for each unit.
Arbitrage actually helps to stabilize prices on the market because if the prices vary too much across the exchanges, someone might take advantage of it and making a killing. Nonetheless, it is not possible to have uniform pricing across all exchanges and there will always be price differences even if for a couple of seconds. High-frequency trading algorithms are used to detect these price fluctuations and take advantage of them automatically.
A look at various cryptocurrency exchanges will reveal drastic differences in prices of the same assets. In fact, cryptocurrency is the only market where you have huge price differences – even up to $50. This is largely due to the fact that the crypto market is unregulated. The biggest challenge for Bitcoin arbitrage trading is that you will need to trade huge volumes for you to make any Signiant profits. At the time of writing this, Bitcoin is trading at $7,951. Assuming you got an arbitrage opportunity for a $1 price difference, you will need to trade at least 100 bitcoin for you to make a meager $100 and that’s not factoring in the transaction charges. At the current price, 100 bitcoin will cost you $195,100. Very few people can afford such a capital.
Is Bitcoin arbitrage worth it?
The only way to justifying exposing such huge capitals for such small gains is to make several bitcoin arbitrage trades. For instance, if you made $100on every trade and made hundreds of such trades in 24 hours, the profits will justify the risk on the capital. Otherwise, it wouldn’t make sense to risk $195,000 to make $100. So if you were doing arbitrage manually, it would be a really bad idea. However, it is practically impossible to execute the trades with the split-second timing needed without using a trading tool.
There are lots of bitcoin trading tools that you can use to execute arbitrage trading successfully. There are two main advantages of using these tools for your bitcoin arbitrage strategies. First and foremost, the trading algorithms will execute the trades instantly and therefore give you more accurate and profitable trades. Secondly, the trading algorithms can run on autopilot which helps to increase the frequency of your trades thereby maximizing your profits. For best results, make sure to go with a trading bot that integrates with a number of exchanges in order to expose you to as many arbitrage opportunities as possible. Last but not least, trading with the bots also helps to yo eliminate your emotions from the trading process and that alone can save you a lot of money.