Welcome to Bulliscoming Media. In this article, we give an in-depth view of what Bitcoin arbitrage is and how to get started.
The cryptocurrency space is filled with so many money-making opportunities, and that is one of its unique features that makes it so attractive to a lot of investors into space. Making money from cryptocurrency doesn’t necessarily require actively trading the cryptocurrency market, which usually requires an in-depth knowledge of technical analysis, the ability to read charts, fundamental analysis, and how to use technical analysis tools, etc.
Although active cryptocurrency trading is one of the most well-known and popular methods of creating wealth from the cryptocurrency space. There are still several other means of making money from bitcoin that are not so popular as day trading, but still, turn everyday people into multimillionaires, and others are taking advantage of this opportunity.
One of those not-so-popular but very effective methods of making money from the cryptocurrency market is bitcoin arbitrage trading. Bitcoin arbitrage trading involves taking advantage of the price differences of bitcoin on several cryptocurrency exchanges.
This method of arbitrage not only applies to bitcoin alone but can be applied to altcoins as well. However, since bitcoin is more stable and trustworthy than altcoins, bitcoin arbitrage is one of the most popular forms of crypto arbitrage trading.
What is Bitcoin Arbitrage trading?
This method of trading involves leveraging price differences between bitcoin on several platforms and making a profit from these price differences.
Bitcoin arbitrage trading is one of the most effective and low-cost methods of making a profit from the cryptocurrency markets and is sometimes preferred to actively trading the markets. This is because active crypto trading requires a lot of knowledge of technical analysis metrics and other trading aspects. With bitcoin, arbitrage trading only requires noticing price differences across different platforms on time and taking advantage of these price differences swiftly and on time.
It is seen as a form of business for several actors in the cryptocurrency industry. The profit margins can be very large depending on the technical know-how and capital of the involved party. For instance, Mr. A buys bitcoin at $20,590 on Binance and sells it at $21,000, taking advantage of the $410 price difference between both platforms.
This method of trading is categorized as a short-term trading strategy, but in actual truth, it is done swiftly within minutes to get the most out of it. This is because the cryptocurrency markets are very volatile and these price differences do not last for long, so leveraging for profit requires very swift action for it to be completed.
It is important to note that the cryptocurrency market itself can be very volatile, and therefore, trading any aspect of the market regardless of the strategy used requires proper knowledge and understanding of the market movement and risk management procedures to avoid losses.
Types of bitcoin arbitrage
Leveraging bitcoin arbitrage involves different approaches and methods to best make profits from this strategy. Some of the strategies involved includes:
- Cross-exchange bitcoin arbitrage
This is actually the most popular method of bitcoin arbitrage. Cross-exchange bitcoin arbitrage involves buying bitcoin from one exchange at a relatively low price and selling it off on another exchange at a higher price. This method is quite simple and straightforward, which is why it is the most commonly adopted method.
- Spatial bitcoin arbitrage
This method also works in almost the same way as cross exchange bitcoin arbitrage method, only, in this case, it involves geographical differences. Bitcoin demand and supply differ depending on the region, and this has an influence on the price of bitcoin on the exchange. For example, if the demand for bitcoin is higher in the United States than in Africa, the price of bitcoin on a U.S based exchange, for instance, would be different from the price of bitcoin on an exchange in Africa.
Spatial bitcoin arbitrage involves taking advantage of the price differences of bitcoin across exchanges in different regions.
- Triangular bitcoin arbitrage
This is a more complex method of bitcoin arbitrage trading as it requires working with other cryptocurrencies to create a trading loop. Some Bitcoin arbitrage traders do more than just buy and sell on other exchanges. They take advantage of the price differences between other cryptocurrency pairs. For instance, a trader could buy bitcoin, convert it to Ethereum, then use the Ethereum to buy ADA before converting again to bitcoin.
In some cases, the trader ends up being profitable and gaining more bitcoin at the end of the loop than he started with at the beginning of the loop.
How to Do Bitcoin Arbitrage
Getting started and making a profit can be done using several methods, depending on the trader and his ability to apply some of the strategies.
This is the common method of getting started with arbitraging bitcoin. In manual bitcoin arbitrage, the trader has to actively look for arbitrage trading opportunities in the cryptocurrency market. This can be achieved by monitoring different market prices on crypto websites where these market prices are displayed, such as Coinmarketcap, Coingecko, etc.
Manually searching for arbitrage opportunities in bitcoin markets can prove to be very difficult and stressful, being that the cryptocurrency market is very volatile and prices fluctuate very quickly. As a result, when a price difference is noticed, it requires swift action to make a profit because the prices can change again in a short time.
- Use Free Arbitrage Alert software
There is free software that is programmed to detect arbitrage trading opportunities in the market and drop these alerts on the software. This is one of the most common tools that most arbitrage traders focused on bitcoin make use of because tracking the market for bitcoin price difference opportunities manually can be very stressful and exhausting. So why not just have software that notifies you when there is an arbitrage opportunity discovered?
- Use bitcoin arbitrage trading bots
Even with using free arbitrage alert software, setting up the process for bitcoin arbitrage can be stressful. Since time is a very crucial factor to be considered in the bitcoin arbitrage business, using bots can be very beneficial. Bitcoin arbitrage bots are programs that assist a trader to detect these bitcoin price disparities across the cryptocurrency market and place the trade swiftly for the trader, taking profit in the process.
These bots can be very reliable as compared to the manual method since the bots can place several trades in and out within a day, making a good amount of profit daily as compared to the human inefficiencies and delays associated with the manual method.
Is Bitcoin Arbitrage Profitable?
It is safe to say that almost every sector of trading in the cryptocurrency market is profitable, depending on the level of knowledge of the party involved and their risk tolerance. In the same way, bitcoin arbitrage trading can be very profitable depending on the trader’s risk tolerance and leverage power.
Although there are risks involved in bitcoin arbitrage trading, the profit-making potential is high with low risks involved.
Is Bitcoin Arbitrage illegal?
Bitcoin arbitrage trading is not illegal as there are several cryptocurrency exchanges in existence where bitcoin is actively traded daily and, as such, there would always be price differences between these exchanges.
Bitcoin arbitrage is simply taking advantage of these price differences between different bitcoin trading sources for a profit. It can be done on almost all the well-known bitcoin trading exchanges, such as Binance, Kucoin, FTX, Hotbit, etc. Essentially, anywhere there is a price discrepancy detected is a bitcoin arbitrage trading opportunity for profit making.
Best Bitcoin Arbitrage trading platforms
Before committing to one, in-depth and extensive research is required first. This is because some of these bots require direct access to the trader’s account to function properly.
Some of the best bitcoin arbitrage bots include
- Pionex etc.
This list is based on research and not financial advice. Before committing to any arbitrage bot, be sure to do your own research properly.
Bitcoin arbitrage trading is considered one of the best ways to make a profit from the cryptocurrency markets. This is because bitcoin arbitrage is considered a low-risk strategy and therefore relatively safer as compared to the other strategies for trading the cryptocurrency market. In addition, it doesn’t cost much to start up and requires little knowledge and understanding of the cryptocurrency market to get started.
Even though bitcoin arbitrage is considered a low-risk means of generating wealth from the cryptocurrency markets, it is also important to take proper caution because, as with any sector of the cryptocurrency market, bitcoin arbitrage trading also comes with its fair share of risks.