Financial Planning

What’s Crypto Arbitrage? Is It Worth To Do?

The fact that each bitcoin exchange shows a different bitcoin price has spawned crypto arbitrage.

Cryptocurrency arbitrage is the simultaneous and synchronized purchase and sale of an asset in order to profit from price inequality in two different markets.

Cross-exchange arbitrage of cryptocurrencies

Crypto arbitrage is the process of buying bitcoins on one exchange and selling them on another where the price is higher. Different exchanges will have different prices for bitcoin, and some people manage to take advantage of this and make profits out of thin air.

This is about arbitration in a nutshell. If you would like a more detailed explanation of crypto arbitrage and how it is done, keep reading.

Simplified example of cryptocurrency arbitrage trading

Let’s take a simple example of arbitration to illustrate how this is done. Imagine that the Bitcoin price on Binance is $ 6,856 while the Bitcoin price on CREX24 is $ 6,954.

The price difference is $ 99, which is a pretty decent arbitrage opportunity. Let’s say you buy 100 bitcoins on Binance at $ 6,856 each, and then sell them on CREX24 at $ 6,954 each.

Let’s move on to the calculations:

Number of bitcoins bought on Binance – 100

The price of each bitcoin is $ 6,856

General expenses – $ 6,856 * 100 – $ 685,600

Number of CREX24 bitcoins sold -100

The price of each bitcoin is $ 6,954

Total income – $ 6,954 * 100 = $ 695,400

Total Profit – $ 695,400 – $ 685,600 = $ 9,800

It is interesting to note from the example above that we need a relatively large amount of capital in order to make substantial profits through arbitrage. However, in real life, things are much more complicated than in the above simplified example.

Arbitration of cryptocurrencies between exchanges in practice

When trying to arbitrate, you are likely to face following  four obstacles:

  • Cross-exchange arbitrage can take some time to validate transactions (for depositing and withdrawing from exchanges), during which time the price of bitcoin can change.
  • Many exchanges require verification in order to trade large amounts of cryptocurrencies.
  • Exchange commissions, which we overlooked in this example, can eat up your profits (below we will provide a link to exchange commissions).
  • The volume of transactions must be high enough on both exchanges to satisfy large buy and sell orders.

Be aware that price differences could also reflect technical problems or issues with the exchange’s reputation.

What is a cryptobot for trading?

Effective trading on modern financial markets is possible without the direct participation of a speculator in trading. This is also relevant today for cryptocurrency exchanges, where the competent use of the capabilities of cryptobots can bring a stable profit to the trader.

So, a cryptocurrency robot (bot) is a specially created algorithm that uses different indicators, as well as a software system (scanner) that recognizes points of entry into the market and makes transactions on behalf of the user.

In such a rapidly developing segment as the crypto market, the ability to automate the trading process is in great demand. Traders with coding skills and programming knowledge can create their own cryptobots or intelligently optimize existing advisors for effective trading with digital coins. The robot will independently trade cryptographic assets, bringing income to its owner.

Types of cryptobots and their features:

Trading. They use indicators of technical analysis SMA, RSI, MACD, etc. to make decisions about buying or selling an asset.

Advanced. For advanced users. There is no preset strategy, the bot can be completely customized from scratch to suit your requirements.

Script. For those familiar with programming. Open source is taken and edited for yourself. This allows you to get the most tailored result due to the flexibility of development.

Market makers. They add orders to both sides of the order book, thereby forming market liquidity. If during this process live traders appear, then their orders are instantly redeemed, after which the bot continues to work.

Signal. Help collect forecasts from TradingView, social networks, blogs, media, Telegram channels and other sources. Based on the received data, they send signals about changes in the market or create trading recommendations.

Arbitration. Focused on intra-exchange or inter-exchange arbitrage. Due to the high volatility of the crypto market, such bots carry out a large number of transactions and provide a certain amount of income. However, finding an effective arbitrage bot is difficult – the more people use it, the lower the profitability will be.

Statistical arbitrage bots. They reveal the regularities of the rates of different coins and find the dependence of some on others. The set of cryptocurrencies in question is selected by the user, he also sets the candidates for short and long at his discretion. Such cryptobots are usually not made available for public use and are used by hedge funds.

The best bots for trading cryptocurrency on the exchange in 2021

Robots and advisors that help crypto investors or traders make money in the cryptocurrency market are gaining more and more popularity, becoming in demand in modern online business. Let`s look to 3 of them.

  1. Revenuebot

A bot for automatic trading of cryptocurrencies that requires minimal user intervention. It is enough to set a number of initial settings. All settings are described in detail in the FAQ, so that a beginner can handle it.

RevenueBot is a cloud bot for making money on top cryptocurrency exchanges. Automatic trading on the Martingale system is carried out around the clock. There is no subscription fee, only a percentage of the profit obtained during the auction is withheld. Works with Binance, Binance Futures, Exmo, Livecoin, etc.

Features: smart order grid, volatility indicators, backtests, automatic switching between trading pairs.

Supported exchanges: Binance, Bitfinex, Poloniex Bittrex, Exmo, Livecoin, HitBTC, OKex, Cex.io, Bitmax, Kucoin, Kraken, Binance Futures.

Cost: a commission of 20% from the profit from the work of the bot, but not more than $ 50 per month. This scheme is good in that it encourages developers to make the bot as efficient as possible.

  1. Stratum Bot

Simple and user-friendly Stratum Bot aims to facilitate automated trading, especially for novice users. It can simultaneously work with several or even dozens of pairs, using individual settings for each. In difficult situations, a flexible averaging tool (DCA) insures, and a stop loss protects against large losses.

Features: DCA, Trailing Profit, reverse trailing, multithreading, ignoring minor orders.

Supported exchanges: Binance, YoBit.

Cost: YoBit free, Binance $ 13 per month.

  1. 3commas

3Commas is both a bot and a trading terminal. Supports 20+ cryptocurrency exchanges and Paper Trading function. Allows you to organize a single cryptocurrency portfolio by uniting all your exchange accounts. The portfolio is conveniently visualized as infographics in your personal account. Since 2020, 3commas has partnered with the Binance exchange, which gives users a comfortable trading environment through Binance’s asset management and security infrastructure.

Features: backtests, trial period, shorting, DCA.

Supported exchanges: Bittrex; Poloniex; Bitfinex; Binance; Binance Jersey; Binance US; KuCoin; Bitstamp; Bybit; Huobi Global; HitBTC; Coinbase Pro; EXMO; OKEx; Bitmex.com; Kraken; Gate.io; Binance DEX; Cex.io; YoBit.

Cost: tariffs from $ 29 to $ 99 per month (when buying for a year – cheaper). The maximum PRO tariff can be tried for free for three days.

Conclusion

Manual trading on any stock exchange requires speculators to have excellent theoretical and practical training and a lot of time. It is necessary to have specific trading skills, knowledge of assets. On crypto exchanges, these difficult moments for beginners can be easily mitigated by using trading cryptorobots. But it is important to make competent testing of a purchased or taken free algorithm for automatic crypto trading.

It should be remembered that the quality of any cryptobot is determined by the correlation between its efficiency and real value. Any bot for trading cryptocurrencies on the exchange must have a stable performance.

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