2022-08-08

The difference in cryptocurrency quotes on different platforms allows the trader to receive additional income. This method of trading is called arbitrage, and its essence is to buy tokens in order to resell them at a higher price, writes RBC Crypto.

Arbitrage appeared on the stock and currency markets a long time ago. However, it is more difficult to trade according to this scheme on traditional exchanges, because the difference in quotes is very small. Cryptocurrency traders get more opportunities for this type of income due to significant fluctuations in the prices of exchanges for digital assets.

 

What is the difference?

Exchange rate differences arise due to different liquidity of trading on exchanges, explained cryptanalyst and private trader . According to him, there are many users on large platforms and trading is active, so quotes are always market-based. And on small exchanges, liquidity is low, so their rates may lag behind the market.

Another factor influencing arbitration, the expert called high commissions. Expert explained that the more a transaction costs, the fewer arbitrageurs are willing to take on deals, and the more likely it is that exchange rate differences will form between large and small exchanges.

The difference in quotes may be due to the fact that trading in BTC, for example, goes to different coins / currencies, CEO of the Cryptorg platform, believes. He gave an example that in one place it can be trades against USDT, and in another against regular fiat USD.

Also, the expert believes that the difference in quotes and prices may appear due to the fact that the input / output of the coin on the exchange is closed. He clarified that because of this, special conditions arise inside the exchange.

“Moreover, if the input / output on the exchange is closed for a long time, then the difference in prices can be very significant. For example, this happened quite recently with the LUNA coin,” Podolyan recalled.
The price of the asset is formed due to the balance of supply and demand, added senior analyst at Bestchange.ru. He pointed out that for cryptocurrencies, there is no central organization that publishes the official exchange rate, as is the case in the world of finance for floating currencies.

“It is logical that different crypto exchanges will have different levels of supply and demand: as with the prices of products in two neighboring stores,” Zuborev drew an analogy.
The ability to make money on this difference greatly affects the supply and demand in a particular service, the expert believes. He noted that this balances prices in the market, so “arbitrageurs” are in some ways extremely useful for the entire industry.

What schemes do traders use
The most popular type of arbitrage is automatic inter-exchange, with the help of bots. He explained that the robot independently analyzes hundreds of trading pairs on dozens of centralized and decentralized exchanges, transfers funds between exchanges and places buy and sell orders.

Arbitrage is currently carried out in 99% of cases by automatic trading systems, agreed Andrey Podolyan, CEO of the Cryptorg platform.

According to him, such type of arbitration as a triangle is now widespread. It works within the framework of one exchange, the expert said. A coin is selected that trades in at least three pairs: the algorithm can buy ETH for USDT, then sell ETH for BTC, and finally sell BTC to USDT. Thus, at the end, the trader again has a balance in USDT.

In such a bundle, it is enough to get a small% profit for the arbitration to be successful, says Podolyan. He explained that even 0.01% plus, taking into account the commission, already means that the bundle was successful. In his opinion, tens and hundreds of such circles can eventually give a good profit per day. This type of arbitrage is especially profitable on exchanges with low liquidity, where there are market deviations, the expert believes.

Arbitrage between the spot and futures markets is also popular now, adds Podolyan. He said that both perpetual contracts and contracts with a limited duration (quarterly, monthly, and so on) are involved in the work on futures.

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