Arbitrage in Crypto currencies?
There's a saying from Benjamin Franklin or rather it's become a trend, that "Out of adversity comes opportunity", which has also been proven by the pandemic last year. A lot of companies and schools needed to shift towards remote work and learning and like it or not the shift towards that had to be in overdrive, especially for developing countries like Suriname. And now I'm wondering "what are the opportunities for arbitrage in the crypto space?"
To start off arbitrage; also called riskless profit; is nothing more than simultaneously purchasing and selling of the same asset in different markets, in order to profit from the difference in the asset's listed price. For example at market A one pair of sneakers is being sold for $5,- and at market B it's being sold for $10,-. If I wanted to profit from this price difference, I could buy 10 pairs of sneakers at market A and sell them at market B for the $10,- per pair and will be left with a $50,- profit. This is only possible if the two markets aren't aware of the price differences (imperfect information) and with modern technology (automated trading systems) the window for arbitrage gets smaller and smaller, where the cost of the assets get closer together and the price difference gets smaller due to the supply and demand.
Now down to the crypto world, which is a different market - due to over 200 exchanges with a large distribution, with an imbalance in supply and demand and where the price discovery is done separately for each exchange. Here the larger exchanges with liquidity are driving the price, with the smaller ones following them and that's where the opportunity for arbitrage will occur. Different types of arbitrage are: simple-, fiat triangular-, crypto triangular-, convergence arbitrage and cash-and-carry arbitrage. Overall these exchanges could be done between the different crypto currencies, different fiat currencies, exchanges between different countries, etc., because of laws, regulations and the supply and demand in those different spaces.
Just like with everything in life, this also has risks that come with it and those may be: exchange issues, execution risk due to volatility, low liquidity, transfer risks, the different fees (withdrawal, credit card payment, etc.) and different tax laws. Advisable is to carefully set your trades, choose exchanges where you can minimize fees, transfer with faster coins (e.g. ETH instead of BTC), plan ahead, diversify, stay updated on all the different exchanges and last but certainly not least only spend what you're willing to lose.
To conclude what are your thoughts on arbitrage in the crypto world; ever done it, doing it or not for you?
I do have to urge you to always do your own research.
Chasse into the backstage! 💃
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I've done some trades I'm mostly holding cardano and vechain while staking interest I would like to start trading more for the most part I simply look at prices and try to buy them at lower prices
Ah yes, buy at lower prices and HODL, until you think you're ready to sell.
yup, for the some part i want to trade now and earn more interest
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Thank you for the support and really appreciate it. Yes, the trading of tokens here is fairly straightforward. Outside of this space is where it gets complicated.