Arbitrage refers to purchasing and selling an asset to profit from a difference in the asset’s price between markets. It is a trade that profits by exploiting the price differences of identical or similar financial instruments in different markets or in different forms.
Arbitrage has existed for years in the financial world, and it is gathering momentum in cryptocurrency. With cryptocurrency trading taking roots and spreading across the world, there are periods with significant price variance between exchanges.
Crypto arbitrage is when traders take advantage of the price differences, buying crypto on one exchange where the price is low and then immediately selling it on another exchange where the price is high.
In the crypto ecosystem, arbitrage results from the following strategies which traders can use to make a profit:
- Simple arbitrage — is simple arbitrage, traders buy a coin and sell it instantaneously on a separate exchange at a higher price.
- Triangular arbitrage — Traders take advantage of differences in price between 3 currencies. For instance, a trader buys BTC in USD, sells it to make GBP, then exchanges those GBP back to USD.
- Convergence arbitrage — In this, a trader buys a coin on an exchange where it’s undervalued and then short-sells the coin on another exchange at a high value. This way, the trader benefits from the amount of convergence when the two prices meet in the middle.
Benefits of Arbitrage Trading
The acceptance of arbitrage among the wide currency investment public is growing rapidly due to the benefits that come with the strategy. The following are some of these benefits:
Risk-free trading opportunity — Several reasons make arbitrage trading risk free. First, the strategy allows traders to register profits without exposing any cash. Second, unlike open markets, the profits are instantly registered thanks to the rapid trade executions that arbitrage algorithmic trading systems allow. These systems detect any price differences and take advantage of the slightest amount with a high-profit margin. This way, a trader has nil chances to lose money.
Guaranteed profits — Online trading is now considered one of the most efficient and safest ways to make money. Arbitrage further makes this process even more profitable since discrepancies are almost certain to happen within an exchange. Given the small price differences, the gains from a few trades, though guaranteed, may not be solid. Huge profits can be realized when the arbitrageur often trades and in large volumes.
Fast exploitation of opportunities: The secret to making money through arbitrage is speed. Corrections of discrepancies take place time and again. The faster it takes to locate a difference and take advantage, the higher the odds of making good profits. Arbitrage trading systems use pre-programmed algorithms to solve complex mathematical functions that enable fast detection and efficient exploitation of price differences by locating coins undervalued or overvalued at a given time and taking advantage before a correction takes place.
More efficient financial markets — Without arbitrage, markets would have continued running with price differences, which could potentially kill the confidence of investors. Arbitrage helps maintain prices of assets across exchanges more or less the same or with small differences making it realistic.
Price discovery - Arbitrage trading helps ensure the prices of coins across the exchanges are the same and therefore helping in discovering the amount of coins and removes the differences across various exchanges.
Cryptocurrency Arbitrage Trading
There are many aspects that cryptocurrency trading can adopt to attract more investors and realize global acceptance. Allowing traders to use arbitrage to benefit from differences between exchanges and price fluctuations is one of these ways.
Every transfer in crypto makes a difference. With rapid price changes, and with the right tools at their disposal, crypto traders could make a lot of profit. This makes trading more profitable, easier, and efficient while creating trust among investors. One of the proven tools that help traders benefit from arbitrage trading is SIBEX.
Why Trade with SIBEX
Several platforms exist today in the online world to help you trade. Choosing one that helps you achieve your goals could be a tough undertaking. However, amid these exchanges, there is one that has been tried and tested with great results and awesome reviews. SIBEX is this platform that makes cryptocurrency trading more comfortable, safe and legal.
Most arbitrage traders enjoy between SIBEX and centralized exchanges. Users can source liquidity on SIBEX and then sell these assets on local exchanges. Since SIBEX is global and decentralized, the prices are all the time different and you can move in/out your assets with no restrictions or fees. Your trading opportunity cost of capital is dramatically optimized in any market conditions.
SIBEX peer-to-peer (P2P) protocol leverages crypto exchanges and removes intermediaries to enable traders to buy and sell popular cryptocurrencies directly. It provides a range of crypto-assets, including BTC, ETH, USDT, and ERC20 tokens. The SIBEX client is a feature that gives traders the ability to trade the assets peer to peer.
Besides, SIBEX provides the most secure trading platform. Every user is provided their own trading server, which is, in turn, deployed on Amazon Web Servers (AWS). The servers are continuously synchronized with the blockchain to ensure round the clock trade execution. Privacy is guaranteed in that personal details on these AWS are only available at user’s request.
Originally published at https://cryptoadventure.org on May 20, 2020.