What Is Crypto Arbitrage?
Nowadays crypto holders are desperately searching for the way to increase their income from cryptocurrencies. At one point they are all coming to different trading strategies, and one of the most popular is arbitrage. In this article we will define what arbitrage is and which advantages it can bring to a crypto trader in comparison with classic stock market broker.
What Does “Arbitrage” Mean?
Arbitrage is a risk-free trading strategy. If you ask, to define arbitrage, it is the simultaneous purchase and sale of an asset to profit from an imbalance in the price. For instance, there was a phenomenon called “Kimchi premium”. It was the gap in cryptocurrency prices in South Korean exchanges compared to foreign exchanges. The kimchi premium was predominantly seen in the price of bitcoin. For instance, in January 2018 bitcoin was traded at $21,751 on Korean exchange Bithumb and $22,674 on another Korean exchange Upbit. Therefore the spread was almost $1000. Thus, people who figured out it, raised a significant amount of money from buying and selling cryptocurrency on Korean exchanges.
Therefore, arbitrage meaning is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. So no matter if it is bull market or bear market, currency rates go up or down. Since there is at least slight difference between prices on different exchanges, you can still make money. You simply need to be able to catch the spread. On classic stock exchanges it might be seconds until the prices are different. Then they will remain the same for a long time.
However, as the industry evolved and many people started to use arbitrage, there was no such a huge difference in price between exchanges. The spread between rates might appear, but for such a short period of time, human trader will not even notice. Hence, to make money using arbitrage strategies, a very, very fast trading robot is required on classic exchanges. The latency of the robot has to be within 1 microsecond (one millionth of a second). It is quite a challenge to program such a robot and make successful algorithm.
On crypto exchanges, at least for now, robots that are thousands of times slower, can still compete and earn money. Moreover, having a relatively fast (and clever) algorithm translates into profits of up to 10% per month.
However, as crypto-markets evolve, some of the strategies that used to turn a stable profit, become increasingly less profitable. This is a normal situation for maturing markets and it can be addressed by an introduction of new strategies for the same or new instruments. Here comes the modernization of arbitrage strategy, for instance, futures arbitrage.
What Is Futures Arbitrage?
A Futures Contract is a derivative product and is an agreement to buy or sell a commodity, currency or other instrument at a predetermined price at a specified time in the future. They are either physically settled or cash settled. The crypto exchange offers several of its trading products in the form of a Futures Contract with cash settlement.
For example, the single price settlement process gives participants the option of using BTC futures to hedge their exposure in underlying bitcoin or gain exposure to traded bitcoin prices without holding bitcoin.
Good example of the futures arbitrage was given by Arbidex in-house trader. There was a spread between the spot in the bitcoin price and the near futures contract at $ 80, and then this spread became $ 20. That is, the spot costed $ 80 more than futures contract — we sold the spot and bought the futures. When the spread became $ 20 we sold the purchased spot and bought the futures again. As a result, we have earned $ 60 for every bitcoin invested to arbitrage. As you can notice, the price at which we bought or sold is not important — only the difference between spot and futures prices is important.
Why Arbidex Is The Most Convenient Solution For Crypto Arbitrage
Arbidex platform is the perfect tool for cross exchange arbitrage. It has the fastest robots. All what trader need to do is to deposit his/her BTC or ETH to arbitrage and wait for Arbidex automated crypto trading algorithms to make the profit. The project has a large set of tools and choosing the one that is considered the most profitable at any given moment.
By the way, any purchasing transaction with any tradable crypto-asset will be made at the most favorable rate, while the commissions charged by the platform are lower than regular ones charged by crypto-exchanges at the moment. A trader does not have to pass KYC procedure on every exchange — he or she can do it once on Arbidex platform.
Arbidex is connected to major crypto exchanges, including Binance, OKEx, Bitmex, Poloniex, Bitfinex, Bittrex. This is basically all the qualified cryptotrader needs.
Arbidex gives any user an opportunity to earn up to 6% monthly [ Past Performance is Not Indicative of Future Results]. A user needs to sign up, deposit cryptocurrency on the platform and Arbidex algorithm will start generating arbitrage profit. The user also needs to buy ABX tokens. The ABX token is the fuel for Arbidex arbitrage that gives access to premium platform features, at the same time being an internal settlement facility with an integrated discount for Arbidex service and the right to participate in the platform development.
Earlier Arbidex was using strait cross-exchange bitcoin arbitrage but recently switched to more subtle strategies, involving spot and futures contracts in several crypto currencies on multiple exchanges (e.g. futures arbitrage). Additionally, Arbidex team has optimized its trading robot and placed the servers near one of the exchanges to reduce latency.
