How To Make Money With Crypto Arbitrage

If you have been in the world of cryptocurrencies for a while, you have probably noticed the price differences between the different cryptocurrency markets and exchanges. Even the most liquid digital asset, Bitcoin, trades at variable prices on separate markets. Furthermore, it may have crossed your mind that these differences provide excellent arbitrage opportunities. However, it may not be as simple as it seems at first glance.

Let’s take a look at what crypto arbitrage is and how it actually works.

What is crypto arbitrage?

In many ways, crypto arbitrage is like fiat or sports arbitrage. The main idea here is simple: try to profit from price differences for the same asset on different markets or exchanges.

If you need a definition, Investopedia describes arbitrage as “the simultaneous buying and selling of an asset to profit from an imbalance in price. It is a trade that profits by exploiting price differences of identical or similar financial instruments in different markets or in different forms.”

In other words, buy low and sell high!

Cryptocurrency price spreads can be substantial on exchanges. It offers merchants a legitimate opportunity to take advantage of price inconsistencies.

There are three different ways to perform crypto arbitrage:

one). Regular arbitrage , which refers to the buying and selling of the same digital assets on different exchanges with significant price differences.

two). Triangular arbitrage , which involves price differences between three currencies on the same exchange. Try to take advantage of price differences through multiple conversions. For example, you buy BTC with USD, sell BTC to ETH, and convert ETH back to USD.

3). Automated arbitration. Some companies specialize in providing tools for automated crypto arbitrage. For example, one of the leaders in this niche is ArbiSmart , which provides a quick way to deposit funds, choose a plan, and reap the benefits of automated arbitrage trading.

While all approaches are legitimate and can be profitable, it might be more difficult to discover opportunities for triangular arbitrage within exchanges. Conversely, high-volume trading in the same market could qualify you for attractive fee discounts that can have a positive impact on your profits. By far the easiest way to do crypto arbitrage is by using third party arbitrage software, but then you will need to pay special attention to your service provider and how much their services cost.

For the sake of simplicity, we will use examples involving regular arbitrage below.

Why crypto arbitrage could be lucrative
There are many reasons why you might want to try crypto arbitrage, including:

Quick benefits . If all goes according to plan, it is a plausible way to increase your capital. At the same time, it’s all about speed, so you can earn money faster than with regular trading.

A wide range of opportunities. There are over 200 exchanges where you can buy and sell cryptocurrencies, which means plenty of profitable arbitrage opportunities.

Cryptocurrency markets are still young and volatile . Therefore, most exchanges do not share information and operate on their own. Most cryptocurrencies experience many rapid rises and sharp falls, leading to price disparities and profitable arbitrage opportunities.

There is less competition compared to traditional markets. Not all arbitrage traders are willing to give cryptocurrencies a chance, making the crypto space less competitive.

Cryptocurrency price differences tend to range from 3% to 5% and sometimes go as high as 30–50% (in extreme cases).
It goes without saying that cryptocurrency arbitrage works best when trading large amounts. Smaller amounts can result in miniscule earnings that may not be worth your time. In fact, cryptocurrency arbitrage can be a very lucrative activity, but only if you do your research, estimates and calculations.

How to calculate the costs and benefits of crypto arbitrage

Each case is somewhat different, but typically you will need to consider the following fees:

Maker and taker fees on the buying exchange (exchange 1).

Transaction fees (withdrawal) (1).

Deposit fees on the selling exchange (exchange 2) (if any).

Maker and taker fees on the selling exchange (2).

Charges for final withdrawal or “collection” (2).

Also, there are a few other variables you might want to consider:

Market volatility. Some currencies fluctuate more than others and their prices can change faster than expected.

Taxes and regulations in your jurisdiction. It is easy to forget that you have to pay taxes on your crypto operations. Although the rules vary in different domains, you may want to estimate how much tax you’ll need to pay per trade when calculating arbitrage costs and potential profits.

Example: Let’s say you see an opportunity involving a fiat-to-crypto pair. For example, Bitcoin is trading for $3,821 on Bitstamp but selling for $4,032 on Bitfinex. The price difference between the exchanges is US$211. If you have enough funds to buy 5 BTC, you can earn up to $1,055. If you have deposited your funds to Bitstamp via SEPA transfer (takes about 2 days), you have incurred a 0% deposit fee (international transfer costs 0.05%). You will then pay approx. US$47.7625 (round up to US$50) in fees (0.25%) on the purchase of 5 BTC. Fortunately, withdrawals at Bitstamp are also free.

It will usually take between 20 minutes and an hour for your BTC deposit to reach the Bitfinex wallet. Cryptocurrency deposits on Bitfinex are also free, so there are no additional charges here. Let’s say that during that hour the price of BTC on Bitfinex has gone down (in the worst case, it can also go up) by 5% and now you can sell it for only $4010. It leaves you with a potential profit of $943. Finally, let’s say you pay Bitfinex’s 0.2% (0.01 BTC) takers fee to sell your 5 BTC, leaving you with $20,009. If you deduct all costs and fees, this leaves you with approximately $895 in profit.

Depending on your situation, you can decide to continue trading or withdraw the money which, depending on your choices, will incur additional fees ranging from 0.1% to 3%. Also, be aware of the tax consequences for your business.

All in all, it is safe to estimate that you will pay between 3% and 15% of your capital in commissions; therefore, you should enter only the most profitable opportunities.

How to Select Exchanges for Crypto Arbitrage
Once you decide to take advantage of crypto arbitrage, you should evaluate and register with the most advantageous crypto exchanges. Some exchanges, like Bitfinex, require you to verify your account (which takes about 6–8 weeks) and a minimum deposit of $10,000 to start trading. Others are less strict in their methods, however most of them will ask you to pass KYC/AML.

The most critical variables when choosing a crypto arbitrage exchange are:

Rate . High or low trading, deposit or withdrawal fees can make or break deals. Opt for low fee exchanges whenever possible.

Geography. Some exchanges or some of their features may be restricted or limited in your area, so please be aware of this before making a trade.

Reputation. See what reviews and other people are saying about certain platforms before you deposit your funds. There are many shady and unregulated platforms in the industry, so it is better to play it safe than to be safe.

Transaction times . Some blockchains allow for fast transactions, while others can take up to an hour or more during peak hours.

Withdrawal times. Some exchanges do manual withdrawals that happen only once a day or so, so be aware and understand the rules before you enter one.

Account Verification . Some exchanges may not allow you to withdraw funds or fully use the markets before verifying your account, which can take several days or even several weeks at a time.

Market liquidity . Not all exchanges have enough liquidity, especially if you are looking to buy or sell large amounts of digital assets.

Wallet maintenance. Most arbitrage opportunities occur due to wallet maintenance on certain exchanges, so make sure you know if you can withdraw or deposit the crypto assets of your choice.

Step-by-Step Crypto Arbitration Process
A step-by-step crypto arbitrage process is as follows:

1. Discover opportunities.

Many tools can help you find crypto arbitrage opportunities.

For example, here at Crypto news, we offer a handy price tracker that can help you identify crypto arbitrage opportunities between some of the top exchanges and cryptocurrencies.

Other useful tools for finding arbitrage opportunities are:

coinapp

Crypto Arbitrage App

Coinarbitrage.org

Arbitrage.expert

Tokenspread.com

Additionally, you can take advantage of arbitrage automation programs (see the last paragraph).

1. Decide if the opportunity is worth it.

This is the critical moment that determines whether you are going to make a profit or not. It is essential to plan as much as you can before you jump into trading. You need to investigate:

Estimated charges: transaction, transfer, network, deposit or wallet costs.
Research the risks: withdrawal and transfer times, market volatility, wallet maintenance, and any rules or preconditions regarding forex trading and withdrawals.
Weigh how much of your earnings will go to taxes (if any).
A good strategy is to open, verify, and fund your accounts (both fiat and crypto) at numerous exchanges before spotting an arbitrage opportunity. It will help you save a lot of precious time when making trades. Also, on occasion, you may want to avoid BTC transfers between exchanges, as the network is known to be relatively slow and expensive, but it is a problem only when congested.

After determining if the trades and opportunities are suitable for a quick and profitable trade, it’s time to execute it or look for another golden opportunity.

Arbitration automation programs
In addition to manual arbitrage trading, there are platforms that offer software to help you find opportunities and execute trades automatically. They employ bots and scripts that scan certain exchanges 24/7 and can make a profit on their own. Of course, they also come with their fair share of risk, so you have to be careful not to play with money you can’t afford to lose.

One of the best automated crypto arbitrage companies is an EU- regulated ArbiSmart , which offers investors different plans starting from just €500.

Several interesting companies operating in the sphere are Arbitao, Haasonline Software, Gekko, and Gimmer.

Hopefully, this guide has taught you what cryptocurrency arbitrage is and how to do it. Keep in mind that cryptocurrency trading is very risky and you should never risk money that you cannot afford to lose. After all, it is you who must take responsibility for your decisions and research.