From part-time retail trader to full-time professional cryptocurrency market-maker, the Fourstroke story
Part One: How we started
This blog is the first in a four part series documenting how we started our cryptocurrency trading platform: Fourstroke. Over the next three editions I will, as one of Fourstroke’s co-founders, take you through how we got our start, our ups, our downs, and what we’ve learned from setting up an automated cryptocurrency trading platform.
Like many other cryptocurrency traders, it was a family member, my brother, in fact, that introduced me to Bitcoin. This was back in early 2017, a good few months before the famed bull run that would begin at the end of the year.
After seeing the value of the coin creep slowly but steadily up, I couldn’t sit and watch any longer. I moved quickly and bought my first Bitcoin at $1,500.
The value was still creeping up, but I grew impatient. Holding BTC long term is a sound strategy, but I wanted things to move a little quicker. So, I began day trading.
My first month doing this was not a success. I had some wins, but I also made some losses, and I found day trading to be stressful. It felt more like gambling than science. The upside, however: I was learning fast.
As the month progressed, I began noticing something: there were significant price differences between exchanges, also known as spread. In other words, not all exchanges were selling Bitcoin for the same price. Some differences were as much as 3%!
In simple terms, these price differences were a result of cryptocurrency exchanges not being able to take buyers’ fiat money (dollars, euros) and turn it into Bitcoin fast enough. That inability to keep up with demand created big spreads across exchanges.
On one hand, it’s confusing why this can happen, but on the other hand lies opportunity… big opportunity.
I thought: why not sell my Bitcoin on one exchange, with a strong selling price, and buy it back on a second exchange which has a lower buying price. I tried it once manually, and it worked! Essentially what I’d done was reinvent arbitrage, one of the oldest and most used trading strategies.
In fact, arbitrage trading dates back as far as the 18th century, when enterprising salesmen were doing the same thing on the gold-silver exchange between Amsterdam and London. The process is the same, I was just applying it to a new market and technology.
The problem is that making manual arbitrage trades is time consuming, challenging, and, well, just not as efficient as it could be. This whole process can be automated, which means we don’t have to spend our days looking at brain-draining price charts, and we can trade around the clock, 24/7.
Now, I had some programming experience with C++ from my university physics degree, but that was scientific programming and scripting. I needed broader skills in software engineering to build a dynamic trading bot that works across multiple exchanges.
Realizing my own limitations, I called a friend who’s a software engineer. We teamed up to create the Fourstroke bot, and working together, I think, has been one of the key ingredients of our success so far.
There are hundreds, if not thousands, of potential arbitrage trades that we could make, but we were focusing on the spread between Kraken and Coinbase, on the BTC/EUR markets. The arbitrage opportunity was usually in one direction, for example the BTC price on Coinbase was usually 1% higher than on Kraken.
This spread usually stayed in place for a couple of days at a time. The challenge was that we could complete the trade in only once, as we would then need to rebalance our accounts. Withdrawing fiat took days. It was far from elegant or efficient.
After some investigation, I found that two exchanges were using the same bank. I opened an account at the same bank and performed a quick test… Bingo! I just found the next ingredient of our success.
Transactions performed using the same bank as the exchanges took just five minutes. In total, from one exchange to the second, 10 minutes in total. This speed and efficiency was our edge.
Learn how we made our first trading profits in Part two: Building our first trading bot.
Fourstroke is just getting off the ground. We’re looking for developers and engineers to help us build the most efficient and scalable cryptocurrency trading platform around.
Find out more about our current openings here.