Twists And Turns Of Cryptocurrency Arbitrage. How To Earn?
Choosing a right strategy for cryptocurrency arbitrage is a permanent source of income. In previous articles, we discussed simple schemes that can be used from the beginning. Today we’ll find out a little more how to earn on the cryptocurrency arbitrage. Let’s talk about conditions required for successful arbitrage trading.
As mentioned earlier, it is not that difficult to earn on the difference in cryptocurrency rates. All you need is to be quick. There are two types of arbitrage:
Manual. A trader makes all the operations on their own. As a rule, this trading mode is preferred by novice users. Manual trading is also used to test and master arbitrage schemes.
Automatized. A trader uses software to automate trading. This type of arbitrage allows tracking changes in rates on different exchanges and perform parallel trading.
The manual mode is not effective as a strategy of cryptocurrency arbitrage. That is why experienced traders don't use it. In arbitrage trading, the amount of the initial investment has a paramount importance — the larger it is, the greater the profit is. The risk of losing money in manual mode is too high. Therefore, the application and software market is constantly updated with new products to make trading more automatized.
You can automate trading in different ways:
By using special software, for example, a trading platform with enhanced functionality for arbitrage operations.
By using bots, software scripts that are embedded on the website. This option is more common.
A bot is a program with special functionality for arbitrage, for example, bitcoin arbitrage between exchanges. Experienced traders recommend not to use third-party scripts and to write them yourself or use paid open source programs.
Most arbitrage scripts, which are used in the market are paid. There are also free programs, but they are usually too complicated for beginners. There is no point in using bots without correct settings.
Programs make trading much easier. A bot tracks price fluctuations itself and make transactions in the automatic mode in accordance with the cryptocurrency arbitrage strategy. A trader doesn’t need to perform any calculations, as the algorithm will do it itself in accordance with specified criteria.
Bots solve the problem of transactions and inter-exchange transfer speed. This condition is necessary, but not the only one for successful arbitrage trading. The right fit of exchanges and trading instruments is also very important.
What and where to trade?
Intra-exchange trading is always less risky than arbitrage trading between exchanges. Therefore, many novice users prefer simple arbitrage schemes that does not require transferring money between exchanges. Though, when it comes to inter-exchange arbitrage, you should carefully choose a platform to trade. First of all, you have to answer the following questions:
What are the amounts of fees and what do they depend on?
How long are withdrawal transactions processed?
How many cryptocurrency tools does the platform list?
For arbitrage, it is better to choose popular exchanges to reduce the risk of small demand for an asset. This issue has been already discussed in the first article: if demand on one exchange is higher than on the other, it will be impossible to sell an asset for a higher price.
What about cryptocurrencies for arbitrage — it’s up to a trader to decide. Even bitcoin has heavy price fluctuations on different exchanges. Yet, you can choose less volatile and popular cryptocurrencies for trading, but then you will have to invest more money. For inter-exchange arbitrage, it is necessary to give preference to pairs that are listed on both platforms.
These are the main points you need to know before you go for crypto arbitrage trading. Even though you don't have much trading experience, it is worth trying your hand at this activity.