The way you must learn to get better result in your investment!
Everyone knows it is possible to earn with the strategy “buy low, sell high”. Besides this basic skill, there is another more advanced trading strategy called Arbitrage that may help you get better result no matter you are in Bull market or Bear market.
What is arbitrage?
Normally different exchanges of cryptocurrencies offer different prices. For instance, the price of Bitcoin in exchange A is $ 8000 and at the same time, the quotation could be $ 8500 in exchange B. So if you buy Bitcoin in exchange A and sell them in exchange B, you can earn based on the price difference.
It is possible to conduct the same strategy by combining the trades among international and local exchanges.
Arbitrage can be a great tool to allow you to get profits in any market scenario.
Steps of arbitrage:
Step by step of traditional arbitrage:
● Buy Bitcoin with stable coin in an exchange which offers a lower price
● Transfer the Bitcoin to another exchange which offers a higher price
● Exchange the Bitcoin to stable coin
● Transfer stable coin to another exchange which offers a lower price of Bitcoin
The biggest risk in the whole process is the transfer time.
A great opportunity can simply disappear during the sending of cryptos from an exchange to another, ending up with the loss of fees.
A more efficient arbitrage: parallel loop arbitrage
In reality, there is an alternative to minimize this risk and optimize the result of arbitrage: parallel loop arbitrage.
With this type of arbitrage, it is possible to reduce the risk caused by the price fluctuation in the process:
● Place a purchase order in the exchange with lower price and a sales order in the exchange which offers a higher price at the same time.
● Later, transfer BTC to the exchange which offers a higher sell price and transfer stable coin to the exchange which offers a lower buy price to continue the loop.
The practice of this technique will only work under the condition that you have a balance in both of these exchanges.
As explained above, both the waiting time of transfer between different exchanges, which may vary according to the blockchain network condition, and the price fluctuation can lead to different arbitrage scenarios. Here are 3 basic tips:
1. Choose exchanges with high liquidity
Higher liquidity the exchanges offer, less time you wait for the execution of the orders.
A high liquidity means your order can be fulfilled within a short period which is fundamentally determined by the quoted spread (difference between ask and bid). A smaller spread implies a higher liquidity.
It is possible to measure the liquidity through the order book depth and transaction volume.
2. Choose cryptos whose transfer is faster
As long as there is a price difference between 2 exchanges, arbitration is possible to make. It’d be better to choose cryptos as XRP and ETH, whose transfer is faster. You can find good arbitrage options, like ETH pairs in NovaDAX crypto-crypto order book.
3. Seize a lower fee
The main cost of arbitrage is the commission fee of exchanges.
Choose NovaDAX to realize your first arbitrage! Get more profits with Novawards Master which offers a pretty attractive fee from 0.07%!
