What is Arbitrage Trading?


In exchange crypto CoinMarketCap there are 208 listed, in which the exchange without charge is excluded. If no charges are incurred on the exchange, it is possible for the merchant (or bots) to trade back and forth with them and make a lot of “false” without penalty. It is possible to determine the total volume of counterfeit so that they are fully exempted from the calculation.

As the number of exchange are many and currency cryptography high, traders can take advantage of arbitrage.

Arbitrage is possible without the risk of profit after transaction costs. For example, arbitrage exists when there is an opportunity to buy something immediately for a low price and sell them at higher prices. People involved in the so-called Arbitrage Arbitrageur, such as a firm or brokerage firm. The term is used mainly for trading in financial instruments, such as bonds, stocks, derivatives, commodities and currencies.

type Arbitrage

If you plan to start trading Arbitrage, you should is that if one of three conditions are met:

– Assets that are not traded at the same price in all markets ( “the law of one price”).

– Two assets with identical cash flows that are not sold at the same price.

– Assets that have known price in the future does not today trade at the price of its future discounted at the interest rate risk-free (or, the asset has a cost saving is significant; therefore, for example, this condition holds the details but not to securities).

There are three types of arbitrage:

– Arbitration simple: Where cryptographic currency traded at more than one exchange, Arbitrage occurs simultaneously buy and sell in one on the other.

– Triangular Arbitrage: Arbitrage as a result of the difference in price between three different currencies in the foreign exchange market. Arbitrage strategy involving the three trade triangle, beginning to change the currency for a second, the second currency for a third, and the third to the beginning of the currency. For example, in the EU Ethereum buy, sell Ethereum in Japan, and then switch back to the Japanese yen to euro profit.

– Arbitration of the price: As a result of Arbitrage, cryptography prices in different markets tend to converge. For example, in the stock price Ethereum Kraken is $ 1,000, and prices on the exchange Ethereum Bitstamp is $ 1,500. Prices in Kraken are undervalued and prices in Bitstamp too high. Arbitrageurs can buy and sell Ethereum Ethereum the Kraken in Bitstamp. Because of the effect of the price, the price will be the same. Your profit is the total concentration.

With Inherited Risk Arbitrage Trading

Before you start making your Arbitrage strategy, you should consider the risks associated with arbitrage trading.

Implementation Risk – As a rule, it is impossible to close two or three transactions at the same time. This raises the possibility that when one part of the deal is closed, rapid price movements makes it impossible to close the other at a favorable price.

In addition, if you are trying to profit from the price difference between bitcoin exchange and bitcoin exchange Kraken click here Bitstamp, you can buy a large number of Bitcoin in Kraken and only to find that you can not sell simultaneously on Bitstamp.

Counterparty Risk – By definition, the risk is that the counterparty fails to fulfill their side of the transaction. This is a serious problem if a person has either a trade or a lot of trades related to a single party, the failure of which poses a threat, or if there was a financial crisis when many parties failed. This danger is serious because a large number of which must be traded to generate profits with small price difference.

To implement arbitrage strategies, you need to keep your coins in exchange. One of the main rules of crypto security is not to keep your assets in the stock. There are many exchanges of compromise that caused customers to lose their money.

The solution is to trade on the exchange decentralized, but for the purpose of arbitrage you need a high liquid exchange and liquidity on a decentralized exchange is very low for now.

Liquidity Risk – It is a financial risk for a certain period of certain financial assets, in case we cryptocurrency, can not be traded on the market quickly without affecting the market price.

If you want to apply your Arbitrage strategies, markets must be liquid. If the market is not liquid, this means you can not carry out your transaction is designed without a loss and therefore you can not make a profit on these opportunities.

Asset Transfer Risk – is the risk of transferring your assets to another exchange to make profit from Arbitrage. When you see an opportunity Arbitrage, you will buy assets on the stock A and sell them on the exchange B. To do so, you must transfer the assets purchased on the exchange A to exchange B. The reasons are many, the transfer could be delayed or dropped and you Arbitrage opportunities can be missed.

Users have expressed a lot of problems when transferring funds from one exchange to another, here’s to name a few:

– the Fund can not be moved because of block out offline

– The transaction was delayed for several days, due to the exchange-paying transaction fees low and not so low on the list of miners to do

– The transaction is a short period of time can be moved as a single transaction

– Wallet that crashed, the wallet can not be synchronized with blokchain etc.

Depreciation risk – the risk that prices will decline cryptocurrency. For example, you have to make a profit from arbitrage trading Bitcoin. Only then, Bitcoin prices began to decline taking up all your profits or more.

In conclusion

Arbitrage trading can be very profitable if you can get it right. As noted above, Arbitrage trading brought various types of risk, execution risk, counterparty risk, liquidity risk, the risk of transfer of assets and depreciation.

Basically, everything is speculation because you are betting that you will be able to purchase digital coin on one exchange and sell them higher on both exchanges simultaneously and make some easy money.

If you carry out impact Binance listing, you also speculate because there is no guarantee that a particular coin will be listed.

Leave a Reply

Your email address will not be published. Required fields are marked *

en English