The process of arbitrage is buying cryptocurrency in one exchange and selling it in other at a higher price. This can be done in the exchange itself by trading currencies.
To simplify this let us explain both these scenarios and then dive deep into what are the other factors that you will have to keep in mind while trying to make money in bitcoin Arbitrage.
1. Interexchange arbitrage:
Interexchange arbitrage:
Sometimes the prices of the same currencies vary. This variation mostly depends on the last transaction made by the exchange. This, in turn, varies because of the difference in the number of customers of the exchange. Mostly the exchanges that have a huge number of customers, the prices of the currencies are less volatile than those that have fewer reach.
Example
Let us suppose
BTC in exchange A costs $4,000
BTC in exchange B costs $4,320
We buy 50 BTC from exchange A which gives us the value = $4,000*50=$200,000
Now we sell these BTC in exchange b which gives us =$4,320*50=$216,000
We made a profit of $216,000-$200,000=$16,000
This is just an example to show how inter-exchange arbitrage works. In reality, many different types of fees are deducted which we will discuss later.
Intra exchange arbitrage:
Buying one currency and trading it with another to get a higher value in the same exchange is known as intra-exchange arbitrage. Different currencies have different values of fiat which help the trader to get the profit out of it.
Example
Let us suppose
Value of BTC is $4,000
Value of LTC is $3,500
We bought 50 BTC initially=50*$4000 = $2,00,000
1LTC=0.45BTC
Now we plan to buy LTC with this BTC=50*2.22=111.11
So now the Value of this 111.11LTC are $2,00,000/111.11= $1,800 instead of the $3,500
2. Taxes to keep into account
While it all may seem very easy and lucrative at first but there are numerous taxes involved that may eat up your profit. One of the steps that have to be taken in interexchange arbitrage is that you have to sign up to both the exchanges. Most of the exchanges charge money per transaction and deposit irrespective of currency or the amount of order. This is known as the Fixed fee. Apart from this when you have to sell coins there are two types of fees. The maker or the taker fees.
Maker fee
If you want to sell or buy coins from an exchange you place your order. If your order is not executed immediately then the exchange has to keep it for some time and in this case, it charges a fee that is known as the maker fee.
Taker fee
If your placed order is executed immediately then the exchange charges you 2 to 3 times less than the maker fee. This fee is known as the taker fee.
3. How is arbitrage helping
Arbitrage plays an important role in even doing all the exchanges. This helps to have a healthy trade across exchanges which makes the value of currencies even across all the exchanges.
It is a positive process and does not have any harmful effect on the market. As more and more people start to arbitrage the market will become more stable.
4. Is it a good idea for you to arbitrage.
Earning huge profits from arbitrage is a full-time process and unlike other trades, you cannot come once in a while to check the prices. Nowadays many bots are being used to monitor the prices. Either there has t be someone who is looking at the prices 24 into 7 or there has to be a bot. Also, geographic differences play a huge role. The prices may be varying because of people are active in one part of the world while the people of the other part are still sleeping.
Therefore, it is rightly said that this job needs dedication. You may not gain profit in the first few attempts but as time passes you will learn the tricks and will be more experienced.
Hope this article helps you to learn more about making money through arbitrage.
We’d love to get feedback from you and everyone in the network.
To learn more about B2BPay contact us at B2BPay Trade Payment Services.
