Cryptocurrency arbitrage is a type of trading where the difference in price levels between different exchanges is used to make a profit. These price discrepancies are called spreads and are always present in any market. Arbitrage trading not only allows you to make money but also benefits the market by providing a more or less equal price level between different platforms.
In this article, I will explain to you how to make money through cryptocurrency arbitrage in 2022? and what are the strategies and tools for this.
HOW TO MAKE MONEY THROUGH CRYPTOCURRENCY ARBITRAGE IN 2022?
The idea is to take advantage of the difference in prices for the same digital coin on different exchanges. This is achieved in this way:
A coin is bought cheaper on one platform and immediately sold at a higher price on another. The imbalance in price is profit.
Spreads (differences in prices) can be significant, especially if the asset is low-liquid. However, they quickly smooth out due to the large number of arbitrage traders operating in the market. It is important to quickly find suitable profitable “bundles” and carry out transactions.
For example, if bitcoin is sold at $20,200 on one exchange and $20,400 on another, then the described transaction of purchase and sale will give an income of $200. In fact, a little less – all you need to take into account more trading commissions.
Opportunities for arbitrage often appear at times of high market volatility. It must be borne in mind that this type of trading has its own risks, although in general, they are lower than in ordinary trading, where you need to be able to predict the direction of the course. In this case, you need to be able to find price discrepancies between crypto exchanges in time.
TYPES AND STRATEGIES FOR EARNING
There are two main types of crypto arbitrage:
- Inter-exchange (cross-exchange): A trader buys a cryptocurrency on one exchange and immediately sells it on another, where the price is higher. For maximum performance, it is necessary to have accounts and deposits on both exchanges in order to instantly use the price difference.
- Intra-exchange (triangular): A trader speculates on the difference in the price of an asset relative to two other assets. For example, if bitcoin is worth more against ETH than against USDT, then a trader can buy bitcoin in BTC/USDT, then sell in BTC/ETH, and then exchange ETH for USDT, making a profit.
In addition, p2p arbitrage ( p2p exchanges are used ), as well as spatial arbitrage, can be distinguished. Spatial refers to the buying and selling of cryptocurrencies in different places around the world. For example, it may be more profitable to buy cryptocurrency in Japan than in the US or another country, if we consider buying for fiat. This type of arbitrage trading is very narrowly focused because it is much faster and more profitable not to use fiat, but to trade only cryptocurrencies and stablecoins.
In any case, before you start making money through cryptocurrency arbitrage, you should calculate the potential profit and loss. It is important to consider factors such as:
- Maker/taker trading fees for withdrawals.
- Deposit fees (even if the exchange does not charge them, you will still need to reverse the transaction when replenishing from the wallet).
- Withdrawal fees.
- Depending on the jurisdiction – taxes and other rules.
All this can take up to 15% of the final profit. That is why it is important to find the most profitable opportunities and try to maximize income.
Consider an example of arbitrage with the USDT token on the p2p market.
Suppose that you can buy 1 USDT at 63.12 rubles by paying with Payeer, and sell for 66.77 rubles by receiving payment on a Tinkoff card (the Binance crypto exchange was used).
Theoretically, you can trade as much as you like and earn, receiving 1-3% from each transaction. However, in fact, profits are cut due to commissions, and there are also certain limits on transfers. With frequent transactions, questions may arise from the side of the bank. And finally, rates are constantly changing, some arbitrage opportunities disappear, while others appear.
Another example is inter-exchange p2p arbitrage:
- We buy USDT on the Binance P2P exchange at 62.06 rubles.
- And we sell on Huobi P2P for 71.3 rubles.
TOOLS NEEDED FOR CRYPTOCURRENCY ARBITRAGE
It’s time to consider specific sites, services, and programs that are used to make money through cryptocurrency arbitrage.
First of all, you need to choose the right exchanges – reliable, comfortable, with a high level of liquidity, with a large selection of trading pairs, and loyal commissions.
If you settled on the option with p2p arbitrage, then the following platforms are the most convenient and common:
- Binance P2P
- Bybit P2P
- OKX P2P
- Huobi P2P
Please note that p2p arbitrage trading can vary. One option is to trade between two platforms that are independent of each other, looking among user offers for the cheapest to buy and the most expensive to sell. Another option involves trading within a single platform, says Binance: you buy on the spot market at a low price and sell via p2p at a higher price, making a profit.
With the current development of the crypto market, tracking arbitrage opportunities by manual methods is a hopeless task. There are many automation tools that greatly simplify and speed up the process. Such tools are called arbitration scanners or screeners. Among them, there are both paid and free options. Some specialize specifically in p2p arbitrage trading.
- KoinKnight ( koinknight.com )
- DEX Screener ( dexscreener.com )
- CryptoAlerts ( cryptoalerts.ai )
- ArbiTool ( arbitool.eu )
- Cryptoview ( cryptoview.com )
The scanner connects to several popular exchanges and analyzes all trading pairs present on them, comparing prices. The user is presented with a list of all resale arbitrage opportunities that he can currently take advantage of, ordered from the most profitable.
So, you have found arbitrage opportunities. But you need to understand that the competition in this area is very high, and while you manually create buy and sell orders, you will most likely miss out on profits. Therefore, special bots are widespread – traders connect them using the API to the exchanges they use, and properly configure them, after which the bots automatically find profitable bundles and create purchase/sale transactions on them.
Examples of robots that allow you to make money on cryptocurrency arbitrage.
- Bitsgap ( bitsgap.com )
- Pionex ( pionex.com )
- Haas Online ( haasonline.com )
- Cryptohopper ( crypthopper.com )
- Coinrule ( coinrule.com )
- Zenbot ( github.com/DeviaVir/zenbot )
Basically, bots work on a paid basis – they take either a fixed subscription fee at a rate or a percentage of profitable transactions. Also, many of them provide a demo period – this is a good opportunity to try different systems and draw a conclusion about which one works most effectively in your case.
HOW MUCH CAN YOU EARN ON CRYPTO ARBITRAGE?
Experienced arbitrageurs earn several thousand dollars a month, but it is impossible to predict in advance what their income will be.
The amount of earnings from 2 to 5% from each transaction is considered normal. Therefore, the final profit depends on the number of transactions – how efficiently you work, as well as the cost of commissions, bot fees, etc.
Starting capital also matters. Sometimes it is recommended to start with 2000-3000 thousand dollars, but of course, not every beginner has such an opportunity at the start, so you can start with a small amount.
By actively trading, you can get from $100 per day if you have successful connections and use them correctly.
HOW TO MAKE MONEY THROUGH CRYPTOCURRENCY ARBITRAGE – HELPFUL HINTS
Crypto-arbitrage trading is quite a relevant way of earning today, but its complexity is increasing over time. This is due to the expansion of the number of markets, cryptocurrencies, trading pairs, and increased competition. At the same time, the number of arbitrage opportunities per unit of time is also increasing, you just need to know how to use them.
Things to consider before trading:
Risks: Like all trading strategies, arbitrage is not without risks, and you can run into losses. Don’t invest more than you can afford to lose.
Commissions and taxes: These are additional costs that can take a significant part of the profit, which must also always be remembered.
The higher the volatility, the more opportunities. Arbitrage is not so relevant in stable markets.
High liquidity on the exchanges you choose and in the right trading pairs is also very important. Otherwise, you will have to wait for the execution of your orders longer than you would like, and this is reflected in the profit.
Pay attention to the choice of exchanges for trading: Check which countries the platform works with, whether it requires identity verification, what is the minimum deposit, and what currencies and pairs are supported. Of course, a high rating and a good reputation of the platform are desirable.
ADVANTAGES AND DISADVANTAGES
- The method can be very profitable, especially during periods of market volatility.
- The risks are lower than with conventional types of crypto trading.
- Large selection of auxiliary tools, scanners, and bots.
- Lots of connections are available at any given time.
- The benefit for the crypto market as a whole is the stabilization of price levels.
- You can work from anywhere in the world.
- Possibility of gradually increasing income.
- An understanding of the market and its laws is required. Even when using a bot, losses are possible if it is not configured correctly.
- Substantial commission costs.
- High competition.
- The sphere is taxed.
- Possible problems with replenishment/withdrawal on exchanges, as well as the risks of blocking accounts.
What is cryptocurrency arbitrage?
Profiting from the difference in prices for the same cryptocurrency, which always exists between different exchanges.
What are the varieties?
Inter-exchange (two exchanges participate), intra-exchange (one exchange participates, but three trading pairs), p2p, DEX.
Is it possible for a beginner to make money on arbitration?
Yes, but you need to properly prepare, choose the right exchanges, auxiliary resources, and tools, and make an initial deposit (small).
What are maker and taker?
Makers create buy or sell orders, and takers respond by closing them.
What is spread?
The price difference is the profit of the arbitrageur.
What is an order?
A buy/sell order is created on the exchange.
What is a “glass”?
All buy and sell orders currently open on the exchange are pending execution.
What exchanges are used for crypto arbitrage?
Any. But preference is given to spot and p2p exchanges with high liquidity – Binance, Binance P2P, etc. Arbitrage on DEXs (decentralized exchanges) is also possible.
What services help you earn money?
Screeners that look for arbitrage opportunities (bundles) on various trading platforms, and bots that can automatically conduct transactions by finding suitable buy/sell options.
How to choose exchanges for trading?
It is recommended to take into account the reputation and reliability of the exchange, KYC requirements, minimum deposit, trading commissions, as well as the presence on them of those currency pairs that you consider promising.
Almost everyone can earn money on cryptocurrency arbitrage today, but this cannot be called a simple matter – it requires a significant immersion in the field and the study of all the nuances. It is imperative to draw up a preliminary “business plan” taking into account commissions and other costs, as well as risks, and only after making sure that it is possible to make a profit in the current market conditions, start trading with a small deposit.
Over time, you can develop and make crypto arbitrage a permanent way to generate income, as many traders have already done. Importantly, this is not a temporary income – arbitrage will exist as long as the crypto market as a whole will exist.