What is Cryptocurrency Arbitrage trading?
What is Cryptocurrency Arbitrage trading?
Arbitrage trading of Cryptocurrency is a way to buy it at one exchange at low price and sell it at another at high price and get profit from the difference in the price. This is the way to exploit price differences that exist among different exchanges. Arbitrage also indicates a volatile market. Arbitrage provide a way so that price among different exchanges do not deviate substantially for long time. Arbitrage opportunities indicates that market is not perfectly efficient which is leading to these deviations.
How people exploiting Arbitrage trading?
Some people have developed software to keep an eye on price fluctuations among different exchanges. They also set automated execution of buying at one exchange and selling at another.
What are some road blocks in Cryptocurrency Arbitrage trading?
- Sending Bitcoin or other Altcoins to any address is not immediate as other form of trading. It takes some time for verification and credit. At the same time the prices for Cryptocurrencies are very volatile. They can change a lot within minute. So ultimately, it may lead to losses instead of gain.
- All exchanges have some minimum amount to be transferred outside and one need to be fulfill that requirement.
- There is some cost associated with verification of transfer between two address. For eg. if you want to transfer Bitcoin from your one wallet to another then you need to pay an associated charge. Your selling price during arbitrage trading should be more than this charge.
- Extra transaction costs, delay in transfer and market volatility making it difficult to make huge profit form arbitrage trading.