How to Profit From Crypto Arbitrage Trading
How to profit from crypto arbitrage trading
Arbitrage trading is a common strategy for day traders, regardless of which asset class they’re trading. If done right it can guarantee a quick profit, but tracking down the profitable spreads and acting on them quickly is key to success.
What is arbitrage?
If you’ve never participated in arbitrage trading before, it involves exploiting price differences across multiple exchanges. For example, if the BAT-ETH market is trading for 0.0013085 ETH on Kraken and 0.00132424 ETH on Bittrex, that’s a price difference of about 1.2%. If you can quickly purchase BAT on Kraken then sell it on Bittrex you can turn a quick profit. Of course each exchange includes trading fees so you need to make sure you factor that in as well.
How to find arbitrage opportunities
Finding spreads (differences in prices) across exchanges requires monitoring a number of exchanges simultaneously and doing the math to determine which is the biggest spread. Doing this manually can be a tedious and slow task, in reality this isn’t feasible.
One great tool that can help with this is Coygo, a secure multi-exchange trading tool that makes many parts of the trading workflow easier. Coygo provides a number of real-time data tools that can be helpful while trading, but we’re going to focus on the Arbitrage Scanner.
As seen above, while watching a market Coygo provides a real-time Arbitrage Scanner below the price chart. We can see price spreads between a number of exchanges, with the largest spreads highlighted with darker colors (profitable spreads are shown in green).
How to profit from crypto arbitrage opportunities
In order to profit from arbitrage trading you need to be able to monitor prices on multiple exchanges in real-time, quickly find the biggest spreads, and submit orders.
Option 1: Buy and transfer
Another faster option doesn’t rely on waiting for transfer times, but it requires you to already hold both ETH and BAT. You would first get some balance of ETH on Kraken (which you will use to buy BAT) and BAT on Bittrex (which you will sell for ETH). With your exchange balances ready, the next step is simply to wait until the spread (price difference) is large enough and start submitting buy orders on Kraken and accompanying sell orders on Bittrex.
Option 2: Hold balances on both exchanges and submit accompanying trades
If you’ve decided that you’re seeing decent spreads on the BAT-ETH market between buying BAT on Kraken and selling it for ETH on Bittrex as in the example noted above, and you want to try to profit off of these spreads, you could simply purchase BAT on Kraken. With that done you can transfer it to your BAT wallet on Bittrex, then sell it for ETH. If you’ve found a good spread you should have more ETH than you started.
Here is an example of how this works. In this example I will use the BTC-USDC market to make things easier. I will also use a fairly large theoretical spread to make the impact more obvious.
Starting state Exchange A
BTC-USDC rate: 7,050
balances: 50,000 USDC
BTC-USDC rate: 8,000
balances: 5 BTC
— — — — — — — — —
Placing trades Exchange A
buy 4 BTC with 28,200 USDC (7,050 * 4)
balances: 4 BTC, 21,800 USDC (50,000 starting — 28,200 traded)
sell 4 BTC for 32,000 USDC (8,000 * 4)
balances: 1 BTC (5 starting-4 traded), 32,000 USDC
53,800 USDC (21,800 on Exchange A+ 32,000 on Exchange B)
5 BTC (4 on *Exchange A + *1 on Exchange B)
— — — — — — — — —
Ending state Total portfolio
You started with 50,000 USDC and 5 BTC. You now have 53,800 USDC and 5 BTC. You’ve accumulated 3,800 more USDC without losing any BTC by exploiting the BTC-USDC arbitrage spread of 7,050 on Exchange A and 8,000 on Exchange B.
Another way Coygo simplifies this process is by helping submit your trades. With Coygo you can monitor markets on two different exchanges simultaneously and submit trades to both exchanges from the same interface, so that you don’t have to waste any time bouncing between different exchanges and order forms.
Trade on multiple markets simultaneously
As you can see above, we can watch the BAT-ETH market on both Kraken and Bittrex simultaneously and submit our trades from the same interface. Responding quickly to a profitable arbitrage spread is key to successful trading, and Coygo provides a huge benefit in this regard.
Arbitrage can be a good strategy for day traders who aim to make a number of profitable trades in a day. A 1% or 2% profit doesn’t sound like a lot but if you can do it 20 times a day and with a decent starting balance, you can turn a good profit. Crypto arbitrage spreads have gotten smaller over the years as automated trading bots exploit them, but there are still profits to be made if a trader is willing to be diligent and uses the right tools.