What Is Crypto Arbitrage?

While arbitrage can apply to more than just these digital coins, there are several reasons why it’s become such a popular method of making money in the cryptocurrency community, allowing you to make decent profits on just about any crypto asset without the high-risk factor. Better yet, you don’t need to be an expert or have any fancy equipment to get started either.

Interested in learning more about crypto arbitrage trading and the benefits that can come along with it? Here’s a little more information regarding what you need to know about this particular trading strategy.

What is crypto arbitrage?

This trading strategy takes advantage of how the value of an asset may vary from one exchange to another, which can often come in several forms. From differences in value in overseas platforms, to simple price mismatches across different trading sites and applications.

Simply put, crypto arbitrage trading is a method where you buy a digital asset on one platform and sell it on another where it’s valued higher. Because of this, it’s a strategy that pretty much any investor can utilise if they find the right opportunities.

Doing so simultaneously will often result in a simple trading process – one that often comes with minimal risk. With this in mind, it shouldn’t be surprising that many investors use this strategy for their investments.

All in all, if you’re looking for a consistent trading strategy that minimises the risks of crypto investments, you may want to try crypto arbitrage.

Why do the prices vary from one exchange to another?

While we gave a few examples earlier, you’ll find that there are often quite a few factors that can aid in cryptocurrencies being set at differing values on an array of platforms.

One of the biggest contributors is the different pricing methods of centralized and decentralized exchanges. On centralized exchanges, the value is based on the most recent transaction made on the exchange, whereas decentralized ones rely on liquidity pools. Using this to your advantage, you’ll often find that making a profit by arbitrage trading is fairly easy to do.

Is crypto arbitrage worthwhile?

Many investors use crypto arbitrage to earn a small profit without having to worry as much about the usual risks of price fluctuations. The fact that these digital assets are well known for their volatility is something that certainly causes caution among new investors who aren’t entirely sure how to navigate the often complex crypto market.

Overall, crypto arbitrage offers investors a chance to get into the world of cryptocurrency and make a profit without the typical level of risk, by removing a significant portion of the issues associated with volatility.

How risky is crypto arbitrage?

Of course, it’s worth considering the fact that this trading strategy is still a form of cryptocurrency investment and as such, there are still risks that can come with it. You need to remember that the value of an asset could unexpectedly change in a short period of time, perhaps even drastically so. This could certainly work in your favour if the value goes up, but there is a chance of the value dropping, too.

One of the best ways to avoid losing out is by finding the two exchanges you want to trade between, selecting one asset and making your moves. The longer you wait between buying and selling, the more chance there is of prices fluctuating, so it’s typically worth doing everything in one sitting to ensure you make a consistent profit as often as possible.