There are multiple trading strategies that are now being used in the crypto market to generate profits. Apart from actively being involved in spot, margin, and future trading, arbitrage trading is also a viable option for traders who understand the market effectively and can act swiftly.
Arbitrage trading is not a new thing and has been practiced for ages in all forms of the market whether the traditional goods market, stock, or even forex market. With cryptocurrencies becoming popular, traders now also take advantage of the price differences of different cryptocurrencies. In the initial stage of the crypto market, the opportunities for arbitrage were very frequent but now with constant updates, technological advancement, and better operation of cryptocurrency exchanges, it is becoming hard to spot an arbitrage opportunity. However, experienced traders are still making enough profit through arbitrage based on their skills, advanced trading techniques, and tools. There are multiple types of arbitrage trading and this article will shed some light on a common type called cross-exchange arbitrage.
Cross-exchange arbitrage refers to the technique where the trading is done between two different exchanges to pocket the price difference of the same cryptocurrency. The traders buy crypto assets on one exchange at a lower price and sell them on another exchange at a slightly higher price point generating profit from the trade. This type of arbitrage trading is quite common and was widely used by traders a few years ago when there were fewer exchanges and price discrepancies were too much.
The price difference usually occurs due to high demand or supply on a centralized exchange while it can be due to liquidity issues on decentralized exchanges. Understanding the reasons behind the price difference of a certain cryptocurrency on different exchanges is a separate topic and will be discussed in one of our next articles. The understanding of cross-exchange arbitrage is very simple, take the example of Bitcoin arbitrage. A trader will have funds in two different exchanges let’s suppose Binance and Coinbase. Let’s suppose due to certain events in the market which can cause sudden volatility, the price of Bitcoin decreases on Binance. The trader will immediately buy Bitcoin on Binance and will sell it on Coinbase before the price change appears on Coinbase too. This is a very simple explanation of cross-exchange arbitrage.
Cross-exchange arbitrage has further types depending on the exchanges and cryptocurrencies used. One of them is spatial arbitrage in which the two exchanges involved in arbitrage trading are from different regions. For example, a trader has accounts on two exchanges, one of which operates in South Korea and the other one in the United States. As the demand and supply of cryptocurrencies vary in different regions like people in Japan are more interested in cryptocurrencies than in the US, this demand can also trigger price differences and the trader then utilizes both exchanges to execute buy and sell orders.
Is cryptocurrency arbitrage a profitable trading strategy?
Although exchanges have now become advanced that they reflect price differences immediately without any delays or lags, there are still opportunities for arbitrage trading due to the availability of hundreds of cryptocurrency exchanges and the massive increase in liquidity. Multiple factors must be kept in mind before hopping into the market to do arbitrage trading. The top priority is the volatility in the market, make sure to choose the asset which has price fluctuations and volatility as stable price movements will offer no chance of arbitrage and if they do, the profit will not be worth it. After the volatility, make sure you choose the right cryptocurrency exchanges for conducting your trades. These exchanges must have enough liquidity so there are no lags in instantaneously executing buy and sell orders. The exchange and transaction fees are important factors that can dent your profits. Therefore, every trader must take into account the percentage of transaction costs, transfer, and exchange fees while conducting trades.
ViBOT is a unique trading solution developed by ViCA Foundation and NROOTM Korea to facilitate cryptocurrency arbitrage. ViBOT has been successfully running since the last year and generating enough profit percentage which is way higher than any other investment or passive income stream. ViBOT utilizes Upbit and Binance to take advantage of price discrepancies of Ethereum (ETH) on both exchanges. The unique aspect of ViBOT is that the amount of ETH remains the same at the end of each trading cycle and the USDT balance increases to reflect the profit so any risk that may arise due to extreme volatility or price changes in ETH is completely eradicated as the trades are conducted simultaneously on both exchanges. ViCA has been live streaming the trades done through ViBOT and now actively publishes the trade data every week keeping the whole operation transparent. ViBOT isn’t limited to generating profits only as it also supports the native token of the ViCA platform called the VICA Token. Any user can participate in ViCA’s arbitrage trading by either becoming an investor or a ViCA token holder to enjoy exclusive benefits. Learn more about ViCA token and ViBOT by becoming a part of the ViCA community.
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