Bitgear.io — Arbitrage Trading on our Platform
To experienced digital currency traders the term arbitrage trading is part of everyday vocabulary, however, as cryptocurrencies have gained in popularity, many new traders and investors are learning more and more about this powerful trading strategy. Here at Bitgear.io, we aim to educate not only seasoned pros but also those of you who have just started trading, by explaining some of the key capabilities of our exchange platform.
First, what is “Arbitrage”?
Arbitrage is the purchase and sale of an asset in order to profit from a difference in the asset’s price between markets. It is a trade that profits by exploiting the price differences of identical or similar financial instruments in different markets or in different forms. Arbitrage exists as a result of market inefficiencies and would therefore not exist if all markets were perfectly efficient.
Source: investopedia.com
Arbitrage Trading on the Bitgear.io Exchange using GEAR Engine
One of the core features of the Bitgear.io exchange is the GEAR Engine. GEAR Engine is the backbone of the exchange ecosystem and allows traders of all skill levels to take advantage of arbitrage opportunities with just a few clicks of your mouse. A single buy/sell order will trigger a series of events in the background which leads to our user getting the cheapest price the market has to offer at that exact moment. GEAR Engine accomplishes this by using proprietary software to consume trade data from over 20 different exchanges in real-time to determine trade setups of a specific asset (cryptocurrency) to ensure the user buys and sells the asset at the best price possible. GEAR Engine enables you to invest using a simple automated arbitration engine that will create optimal trading opportunities while passively investing and using different decentralized financial products. Previously these strategies were only accessible to those with direct broker access and an intimate knowledge of many exchanges, and access to large amounts of liquidity. With GEAR Engine, arbitrage trading is now available to individuals from the comfort of their own home. All you need is access to Bitgear.io’s Exchange. Bringing arbitrage trading to the masses will allow the everyday trader to take advantage of this powerful trading strategy that previously was only accessible to seasoned pro’s.
Built into GEAR Engine is a large variety of arbitrage algorithms that are selected and deployed to the user interface based on the trade setup they desire. There is no need to choose your specific arbitrage strategy as GEAR Engine selects the strategy or strategies that best fit the investment opportunity. Sometimes it will use all the methods available, or sometimes just a few. The most important part is that the users will not have to manage the complicated part of setting up an arbitration bot, choosing the exchange, or even direct what it should do. Bitgear.io will also utilize its own liquidity to perform internal arbitrage when the opportunity predicates it does so, thus minimizing risk to the trader, nearly guaranteeing a positive outcome.
Types of Arbitrage Trading with GEAR Engine
Simple Arbitrage: Buying and selling the same coin immediately on separate exchanges.
Triangular Arbitrage: This process involves taking advantage of the price differences between the three currencies. For example, buy BTC in USD, sell it to make EUR, and then exchange those EUR back to USD.
Convergence Arbitrage: This approach involves buying a coin on one exchange where it is undervalued, and short-selling the same coin on another exchange where it is overvalued. When the two separate prices meet at a middle point, you can profit from the amount of convergence.
Case Study:
Let’s assume we have two exchanges that both list BTC:
- Exchange A is a major exchange with a high trading volume. The price of BTC on this exchange is US$8,800.
- Exchange B is a smaller exchange with less trading volume. The price of BTC on this exchange is US$8,805.
Now, let’s assume that there’s an important announcement that is likely to encourage people to buy BTC, such as the US Internal Revenue Service announcing that all BTC deposits will never be subject to tax.
This prompts widespread demand for BTC, and most buyers head to the biggest exchanges because they offer the easiest way to buy cryptocurrency.
This surge of buyers causes an increase in BTC prices on large exchanges like Exchange A, while Exchange B sees less trading volume and its price is slower to react to the change in the market. BTC reaches US$9,240 on Exchange A, but only rises to US$9,070 on Exchange B, which is where arbitrage comes in. You could do the following:
- Buy BTC on Exchange B at US$9,070.
- Transfer your BTC to Exchange A.
- Sell your BTC on Exchange A for US$9,240, securing a profit of US$140 per BTC.
GEAR Token for Arbitrage Access
To use our GEAR Engine arbitrage tool you will have to hold a certain amount of GEAR (to be announced), which will be used as a “fuel” component that makes the engine run, allow token transfers to and from the Bitgear.io wallet as part of an investment pool.
The token is needed as “fuel” for the engine and enables the arbitraging (aka GEAR Engine) component of the system to function. The GEAR Token will enable various tasks and power the ecosystem as a whole. How much GEAR is needed will depend on the general usage of the platform itself and will vary depending on the trading volume as a whole, as well as the number of users that are running their engines simultaneously.
A minimal burning process of the GEAR that is used will get triggered and will depend on various factors such as total network load of the Ethereum network, GAS needed and fee structure of the different exchanges that are currently used for arbitraging the different investments.
When using GEAR to fuel the different components on Bitgear.io you will also be rewarded with a bonus depending on the amount of GEAR you stake. So not only will it fuel your engine with a minimal amount of GEAR but it will also provide you with a bonus (for example on the number of arbitrage trade earnings that are made).
GEAR Engine and GEAR Token — The Future
We have a lot of different goals for the future of our platform. One of the goals is to become a very large liquidity provider for current centralized and decentralized exchanges. We also aim to act as a tool to smooth out arbitrational spikes between exchanges by introducing a large amount of volume by market-making. This can lead to a more homogenous market overall and eliminate the need to be “on the right exchange” when it comes to trading.
Listings and new cryptocurrencies that have just been added for trading can suffer from a huge arbitrational gap that we can both take advantage of and help reduce. The larger our personal investment assets are the more we can act in this fashion. This also lowers our fees since exchanges profit from the liquidity and smoothing out of market movements considerably. We aim to get most of the exchanges to a similar price as quickly as possible and eliminate huge gaps in price in the process.
Scaling in terms of speed and maximum arbitrational yield is currently the goal and will be a top priority in the development of GEAR. We aim to be able to arbitrage even the smallest of spatial price gaps by reducing the fees to an absolute minimum, making even small trades profitable.
The Bitgear.io exchange was developed by traders, for traders. To learn more please follow Bitgear.io on medium or any one of our social media channels:
