What is Arbitrage? How Is Bitcoin Arbitrage Made?
What does arbitrage mean? Is arbitrage profitable? How is Bitcoin arbitrage profit generated? The process of buying and selling value assets to make risk-free profits by taking advantage of the formation of different prices in different markets is called arbitrage. The basic logic is to take advantage of the fact that the product is traded at different prices in the markets. It is based on the idea of buying the same product in the market where it is sold at a low price and selling it in the market where it is traded at a high price.
What is arbitrage?
arbitrage includes purchasing a resource on one market and selling it on one more to benefit from a cost distinction between the two. Exchange is generally considered to offer an appealing speculation opportunity as it will in general give solid returns while presenting the financial backer to negligible gamble.
If the arbitrageur sells the value asset purchased at a higher price, he or she can earn a profit easily and without risk.
This method is frequently used in the cryptocurrency ecosystem. As it is known, the price of the same coin can be different in every cryptocurrency exchange in the world. If the arbitrageur can sell the coin he bought at the right time on a different exchange at a high price, he will make a profit.
Is arbitrage profitable?
Theoretically yes. However, in order to make a profit in practice, it is necessary to follow the markets effectively.
In order to apply the method, it is necessary to follow the values of the asset targeted to be invested in different markets moment by moment. Timing is crucial to buying from the lowest trading market and selling to the higher trading market.
While doing this manually is possible during periods of high volatility, it may not always happen. Generally, there are software and algorithms specially developed for this type of operation.
Arbitrage; It is a method that is easy to define, but difficult to implement and requires experience.
Although by definition it seems easy to implement, the arbitrage method is actually a difficult process. It requires regular monitoring of the market. Inexperienced traders are likely to lose money at times while waiting for profits.
Arbitrage application / Arbitrage robot
In the globalizing world order, it has become more difficult to implement arbitrage compared to the past, due to the increasing interaction of traditional markets. Today, more or less similar prices are observed when the values in different markets are examined. Minor differences in prices oblige the arbitrageur to trade heavily to make a profit.
On the other hand, since transactions are happening so fast nowadays, it is necessary to access data instantly and act immediately when the opportunity arises. This is where arbitrage applications and arbitrage robots come into play.
While making arbitrage in traditional markets, software containing algorithms suitable for the purpose is used.
Thanks to the software developed, investors can analyze prices in different exchanges and place orders on two different exchanges at the same time, and they can buy in one and sell in the other. Software developed for this purpose is frequently used by large institutions.
In the classical market structure, individual investors can more easily implement the arbitrage process that appeals to giant fund managers and institutional investors in the crypto money ecosystem.
For individual investors with relatively smaller budgets, arbitrage in the cryptocurrency markets is easier than arbitrage in the traditional markets.
Arbitrage in the cryptocurrency ecosystem is easier, but more risky, compared to traditional markets.
As it is known, the cryptocurrency ecosystem is a market with high volatility, that is, with price volatility. It is a very active market… It is easy and inexpensive to trade from anywhere in the world, but it is difficult to catch prices at the targeted levels since the transactions do not take place in real time.
Is arbitrage profitable with altcoin?
When we apply the arbitrage method to altcoins, we encounter a similar picture with Bitcoin. However, since the prices of altcoins are lower than Bitcoin, it is possible to trade in high volumes.
If we go to the example of Dash (DASH), which was traded at $ 70.61 at the time of this writing, it was sold at $ 70.24 on the Bittrex exchange and $ 70.98 on the EXMO exchange.
In other words, it is theoretically possible to make a profit of $0.74 from 1 Dash arbitrage.
Let’s make a comparison between Bitcoin and Dash as an example: An investor with $10,000 can buy 1,072 BTC or 141.62 DASH at the rates we mentioned above.
Again, in case of arbitrage between the exchanges mentioned above, 1,072 BTC worth $10,000 gives $68.6 at the end of the transaction.
If the investor wants to arbitrage $10,000 on DASH, he can make $104.8 profit after 141.62 DASH transactions.
In other words, it is theoretically possible to make a profit in a short time with current exchange rates and market differences between stock markets.
WARNING: Don’t be fooled by arbitrage opportunities right away
It should not be forgotten that the crypto money ecosystem is a very active and price volatility market. As a matter of fact, it is necessary to act very quickly in order to perform the transactions we have given above. Since sending money from one exchange to another will be a waste of time, having deposits in more than one exchange will speed up.
We have said that there are various applications and algorithms for arbitrage transactions in traditional markets. The same is true in the cryptocurrency ecosystem, but it is necessary to be very careful in this regard. There is a safer environment as traditional markets are regulated by law. The same is not true for all crypto exchanges.
You should always be suspicious of announcements such as “Bitcoin arbitrage robot”, “Bitcoin arbitrage sites”, “Altcoin arbitrage software”, “Make money with Arbitrage” that you will see on the Internet.
Think over and over again about surrendering control of your money to someone else or an app. Do not trade until you are 100 percent sure.