How To Maximize Your Arbitrage Trading Profits In 2020
Blockchain enthusiast developer and writer. My telegram: ksshilov
Arbitrage is simple. Due to market inefficiencies, the same asset could be priced differently across the exchange. Therefore, you can buy an asset in one market and simultaneously sell it in another market at a higher price for profit. While considered to be a risk-free profit trading strategy, it’s almost impossible to execute manually as the key here is “simultaneously”.
The most efficient way to take advantage of the arbitrage opportunities in any market is by using a software solution to automate the process. In this article, we’ll explore such platforms that you can set up or sign up to start generating daily profits only by using the concept of arbitrage.
Maximizing arbitrage profits
Arbitrage is a well-known practice in the trading world
. The price mismatches happen due to market inefficiencies. In response to this, arbitrage was introduced as a mechanism to ensure prices do not deviate substantially from fair value for long periods of time. And naturally, those who are helping the market are being rewarded.
First, the trades were made manually. Today, with the advancements in technology, the process has been automated making markets even more efficient. Computerized trading systems
are monitoring price fluctuations 24/7 and execute the trades almost instantaneously and simultaneously. As an effect to this, pricing errors are fixed in a matter of seconds and the arbitrage opportunities disappear with them.
Arbitrage is necessary in the financial world. Arbitrage is a way to make a steady income on a daily basis. But you need to choose the right software solution in order to be able to participate. And, while most solutions are tied to a limited number of assets or markets for efficiency, you need to understand where is the best place to deploy your software solution for maximum profits.
Arbitrage exists since marketplaces were first invented and as a trading strategy, it is used for any kind of market. Price mismatches happen every single second. The balancing trades are triggered automatically by a computer. And profits are gathered on every single trade. It seems like a never-ending loop that can generate money for you indefinitely. However, traditional markets are tied to working hours. When the workday is over, the exchange halts trading. Some exchanges even remain closed on holidays. These are times when your profit-making machine stops. That’s why you should look for true global markets that never stop.
Cryptocurrency exchanges are open 24 hours a day no matter what. There are no weekends or holidays and the trading volume comes from all corners of the world at any given time. With such price action, there’s no surprise that cryptocurrencies are known for having wild price swings
. In the crypto market trading on a 5-10% value change is an everyday thing.
And there’s another thing to consider. Most cryptocurrency exchanges are using so-called oracles to get their price data. Due to latency and lag, most of the time the latest price of an exchange is not so up to date which creates another arbitrage opportunity. Cryptocurrency markets are gold mines for arbitrage trading if you can act fast and keep up with the 24/7 action.
Trading on 29 exchanges at once
Arbitrage is all about locating price differences across multiple exchanges. Therefore, having access to more exchanges at once not only give you a better chance of finding price mismatches and doing profit on them, but also mitigates the liquidity risk of cryptocurrency.
Looking for a tool that could help me reach the biggest number of exchanges at once, I stumbled upon Bitbengrab
, a UK-based company formed by a team of expert traders and programmers. The trading platform they developed is using the unique trading nature of cryptocurrencies to take advantage of the arbitrage opportunities that are being formed across the markets and generate for their users’ profits up to 4%-10% on a daily basis.
Bitbengrab allows traders to connect to 29 exchanges at once. Exchanges like Binance, Bittrex, Bitfinex are supported. The platform uses its libraries to fetch realtime data such as prices and order books, and then tries to find price differences between multiple market pairs and exchanges. Everything happens automatically.
It’s up to you if you want to execute the trades manually or you want to let Bitbengrab do the hard work for you. The platform only needs your exchange API key. The permissions required are for viewing your balance and executing trades.
No withdrawal or deposit permissions are required so your funds will always remain with the exchange. The minimum deposit is as little as $10 and it supports the most popular cryptocurrencies: BTC, ETH, USDT. The platform was launched not a long time ago and it needs to make a name for itself first, but it has a great start and a green status
Host your own arbitrage bot
Arbitrage is not only repetitive, but you will be able to make a profit only by buying and selling on exchanges almost at the same time. Doing this task manually is nearly impossible. That’s why you will need a software solution to help you. If you are tech-savvy you might want to host your own software as your money-making machine.
An open-source solution is Blackbird
, a bitcoin arbitrage bot written in the C++ language. It supports a fair number of exchanges including Bitfinex, OKCoin, Kraken but not even close as many as Bitbengrab. Setting it up requires a little bit of work but the installation process is pretty forward for someone who knows programming and C++.
Once set up Blackbird allows you to long/short arbitrage between Bitcoin exchanges. It doesn’t buy or sell Bitcoins, so you don’t need to transfer funds between exchanges.
The trading bot only short sells/long buys your coins on a short/long exchange. Buying and selling activities are done on two different exchanges independently but simultaneously. Bitcoin is the only supported asset and the strategy is always market-neutral, never being influenced by the actual price movements of BTC. The profit opportunities might not be so high but it’s a great tool to start experimenting with arbitrage trading as a programmer.
Use your trading experience
Exchange arbitrage is a simple, straightforward strategy that could bring you consistent, daily profits, and using a platform like Bitbengrab should be enough for you to take advantage of most of the opportunities that arise across the cryptocurrency markets. Anyway, if you are an experienced trader you might want to combine it with other trading strategies to maximize your profits.
Exploring automated trading platforms that could give you enough freedom to program your own objectives, Cryptohopper
seems to cover the essential requirements. The online platform allows you to set up a semi-automated bot that can execute trades on your behalf. Be aware that the bot we are talking about is only as good as the person that programs it. If the platforms mentioned above are automatically looking for arbitrage opportunities and executing them for marginal profits, The bot only follows the underlying conditions set at initialization.
The online platform allows you to set up a semi-automated bot that can execute trades on your behalf. Be aware that the bot we are talking about is only as good as the person that programs it. If the platforms mentioned above are automatically looking for arbitrage opportunities and executing them for marginal profits, The bot only follows the underlying conditions set at initialization.
Currently, the platform supports 11 exchanges including Bittrex, Poloniex, Binance. Not the optimal range for arbitrage but, given the fact that these are some of the largest exchanges in the space, there are plenty of opportunities to act on.
Cryptohopper is a subscription-based service and the exchange arbitrage feature is only available for the pro subscription. Using it only for generating steady profits from it might not be realistic as your earning should first break-even on the payment fee before being transformed into profits.
Choosing a trading platform is not as easy as going with the most popular choice. Each platform has its pros and cons and it’s up to you to put them in balance and choose the one which serves your purpose the best. All the solutions listed above have the potential to produce passive income for you on a daily basis.
They all have the ability to follow the arbitrage trading strategy. They are all accessing multiple exchanges at once, picking on those opportunities that appear every day.
If arbitrage trading was profitable way before cryptocurrency was invented, you might find out that an open market such as the cryptocurrency market has introduced even more chances for you to cash in on price mismatches. The best traders are taking advantage of it while it lasts!
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