Cryptocurrency Arbitration: How the Profit Is Made

Some major traders and investors deem arbitration on cryptocurrency sites to be the least risky method of earning in this market. The profit is made here through finding of anomalies – differences in prices of cryptoassets between various exchanges. Such a situation is determined by specificities of decentralized market’s operation, and today we are going to talk of what should one do to earn on inefficiency of quotation mechanisms at cryptocurrency exchanges.

Cryptocurrency rate may rapidly change due to its high volatility caused by drastic drops of demand and supply, and that is why some exchanges update their quotations with various speed. Traders discovered such a “loophole” long ago and in the year of 2014, the notorious Winklevoss brothers (who became the first known millionaires having earned on Bitcoin) developed their Winkdex platform. It helps getting the information on current average price of BTC, which function is used by exchanges, when they have to solve disputable issues related to the “fair value” of cryptocurrency.

The Essence of Arbitration Method and Required Resources

In order to earn on price difference, one should have the tool allowing quickly to determine rate differences at exchanges, to calculate the closing gain that should cover all expenses on service commissions and, naturally, to effect flash-like deals. The quotation difference of 2% and over is deemed an appropriate profitability for such transactions. The principle of arbitration pattern of earning may be described as follows:

1. Comparative analysis of selected cryptoasset’s prices at different exchanges;
2. Search for the cheapest offer and purchase of particular number of coins;
3. Following the purchase, one should quickly choose the most favorable conditions for sale of the given cryptoasset;
4. Profit carry-over to Fiat money or cycle repetition through purchase of a new cryptocurrency batch.

Hence, the risks associated with long-term rate sinking are in no way bothering to arbitration traders. When considering the issue by particular examples, we can assume the following situation. On YoBit site, Ethereum may cost $7,500, while at Exmo - $7,450 at the moment. To begin with, one should add funds to own YoBit account (though, it would be better to ensure that money are already there) and purchase 1 BTC, for example. Should the applicable trade commission amount to 0.001 BTC, with commissions for purchase and subsequent sale at Exmo amounting to 0.2% each, the final net profit from $50 proceeds will be $22.5.

In order to have any considerable profit when trading using arbitration methods, one should have more than 6,000 rubles as the startup capital. In such deals, major traders involve millions of dollars in the coins circulating at dozens of exchanges, which allows them to buy out virtually all advantageous orders. Large volumes also allow reducing the commission expenses, and as a result, the profitability increases additionally.

Main Strategies

Most of the players, who practise arbitration on the cryptocurrency market, prefer two main approaches – the conventional and the strategic ones:

• In the first instance, the bulk of the work is performed within one pre-selected cryptoasset available at several exchanges at the same time. In the course of trade, one should continuously track the rate difference and to calculate the final profit by automatically deducting the commissions and other expenses to be born. This approach is recommended to be used by newcomers, since it is quite simple to master, being less profitable though, due to highly limited opportunities during trading hours.
• In case of the strategic method of arbitration trade in cryptocurrencies, there may be several assets, and therefore traders’ “armory” may include various coins with varying trends of growth or drop. With such approach, one should search for the assets that appear overestimated (and sell them) or for the underestimated ones (and effect purchases). Such being the case, one can play with rate ratios at different exchanges.

Optimization of Profit: Automation and Arbitration Bots

Professional arbitragists try to automatize the larger part of their routine actions. This is done not just to make the process more effective: quotation anomalies emerge and disappear very quickly, and exchanges also improve their software in fear of losing profit. One should not only register the difference, but also manage to close two opposite transactions in one or several seconds.

To do this manually seems to be problematic, that is why bots are actively used – these bots may be set to perform particular actions related to asset purchase and sale upon achievement of certain conditions. In the right hands, robot can really bring benefit to its owner, but one should realize that robots are unable to evaluate current situation in the same flexible and adequate way as humans. Besides, the use of bots causes real threat of losing one’s available capital very quickly, if, for example, it begins generating transactions too quickly, this entailing the overwhelming burden of exchange commissions.

Advantages and Shortfalls of Cryptocurrency Arbitration

Traders eagerly venture cryptocurrency arbitration, since such earnings really are less risky than conventional trade at exchanges. Even when the crunch comes, losses will be insignificant, since this is fundamentally the exchange of equal amounts of funds. Owing to the fact that the entire cycle of transactions may be effected in a matter of seconds even manually, this process can be repeated hundreds of times within a day. And now the time comes to talk about the shortfalls of arbitration: of course, there are “hidden rocks” in this niche as well:

• The necessity of perfect orientation in the great variety of exchanges and exchange mechanisms, to have clear understanding of all conditions of their operation. There is a high chance to miscalculate and quickly to go bankrupt on freshly increased (quite possibly that especially for you) commissions of one of the services;
• In fact, one can hardly achieve any significant results using small capital to effect such deals. The arbitration method may potentially justify itself only in case of investing quite a substantial amount in this undertaking (probably, it would be more reasonable to use such an amount simply to trade in exchange with minimum risks).

This all testifies to the fact that one can hardly deem cryptocurrency arbitration (in case of novice traders with no big capital) as the method to derive stable long-term income.

The arbitration game changer: CRYPSTOCK – Technologies for Earning with Any Amount of Capital

However, progress goes ahead with new emerging solutions that ensure an efficient arbitration. At the moment, a new CRYPSTOCK project is under preparation for its launch in ICO. This is the service that allows making profit from arbitration and attracts the investors, who get their dividends in proportion to the funds invested. The purpose of the system is to free amateur investors’ minds of agitation and nervousness concerning currency rates and to ensure constant profit they can truly rely upon.

Transactions are simultaneously effected at thirty cryptocurrency exchanges with the site ensuring a high transactional speed and enabling to make some 20 deals per second. Dozens of high-volume deals are effected each hour, with the auctions being conducted in the upper order of sales only, which brings additional savings of 1% to 5%.

Thanks to the backbone technology serving the basis for this arbitration development, the system can not lose money: the first deal simply will not be effected in the event there is no profit from the second transaction. Owing to this fact, no investors can be at a loss, which is quite possible in case of manual operation or with the use of arbitration bots.

The system is already operational, with its test version available on CRYPSTOCK site and demonstrating real-time anomalies taking place at the moment. This is a perfected, ready-to-operate project, not something that exists in the fantasy of its developers or on paper, and you can see the efficiency of this technology for yourself. If you need more details on participation conditions, please visit the official website of the start-up: www.crypstock.io.

 Conclusion

Cryptocurrency arbitration is quite an efficient method of earning, which is not “grey” in relation to exchanges: though trading sites are not that happy about arbitragists, they can not debar them, since they are the same market players as all other traders. In the absence of knowledge and skills sufficient for cryptocurrency trading, we recommend to take a closer look at CRYPSTOCK project. You can earn on this service even prior to its launch by purchasing tokens – after the launch, token price will rise, and investors will be able to get dividends on their investments or simply to sell the coins at a profit.