What is Crypto Arbitrage Trading ?
What is Crypto Arbitrage Trading ?
With advancements in technology, traders have access to multiple markets around the globe, based on which they develop several strategies to make profits. One such strategy is arbitrage, which is used to benefit from price differences in different markets.
However, to make the most of this technique, traders must know certain crucial factors regarding how to carry out this type of trading. In this article, we have covered everything you need to know about arbitrage trading. Let’s start from the basics by understanding what exactly is arbitrage trading.
Arbitrage Trading Explained
Under this type of trading, traders purchase and sell identical security, commodity, or currencies, in two different markets. The main goal of traders is to capitalize on the differing process for the same asset across two different regions.
Simply put, the term arbitrage trading is used when an asset is concurrently purchased and sold in two exchanges — usually, because they are being sold at somewhat different prices.
For example, shares in a technology firm may be on sale for $35 on the New York Stock Exchange, but available for $35.10 in London. Sure, the contrast is small — yet through bulk purchasing the shares at the lower price and trading them for a higher value can result in a great profit for an eagle-eyed dealer.
Is Arbitrage Trading Popular In The World Of Crypto?
Arbitrage has been practiced for centuries, and it is beginning to gain friction in the world of cryptocurrencies. The reason why arbitrage trading is popular in cryptocurrencies is due to the variations in supply and demand, which has a massive impact on the prices.
With over 200 exchanges being carried out, where you can buy and sell cryptocurrencies there are bound to be price fluctuations, hence, a neat amount of profits can be made in a short period of time. Moreover, carrying out arbitrage is getting easier due to the introduction of various trading platforms that connect buyers to sellers. Through this platform, customers can buy cryptocurrencies from markets wherein the demand is low and supply high, and sell the coin in a marketplace where the demand is high and is the cost.
What Are The Methods Used For Crypto Arbitrage?
When it comes to trading in cryptocurrencies, there are different methods of carrying out crypto arbitrage; spatial, cross-border and statistical. Mentioned below is a brief of each method.
Spatial arbitrage includes taking advantage of the diverse prices for cryptocurrency rated on two different exchanges.
For example, Exchange A may be giving BTC for $9,500, Exchange B’s price may be set at $9,850. A dealer can take advantage of this $350 divide by purchasing from Exchange A and selling on Exchange B — efficiently transferring funds from one to the other.
Given the scope of decentralization in the crypto area, such miscalculations can occur more often than one might think.
While this concept is similar to spatial arbitrage, there is one crucial difference when it comes to cross-border arbitrage. The difference is that the two transactions are conducted in different countries. It is worth keeping in mind that this type of trading strategy is quite challenging due to various reasons like varying regulations, restrictions, capabilities, etc.
This is a hi-tech and advanced procedure, which generally involves mathematical modelling. The highest level of risk occurs in these strategies, as it utilizes trading algorithms, which identify pricing discrepancies that exist only for a short period of time. Hence, neither is the result full-poof, and the time slot to carry out the entire transaction.
Trading, especially in the world of cryptocurrencies, if not carried out well can have severe repercussions and can even lead to huge losses. Hence, BizzTrade makes use of experienced traders who have all the necessary knowledge to seamlessly execute trades like arbitrage and others to generate revenue through minimum risk techniques. Based on the package availed, companies share profits with BizzCoin members.