Low Risk Trading With Crypto Arbitrage (Easy Way Explained) - YouTube

Crypto market has been thriving for years and there are plenty of ways to earn income

on it.

So what if I told you there’s a way of trading with very low risks and almost everyone can

do it?

This way is called Arbitrage.

What is arbitrage?

Arbitrage is a very simple idea.

It means taking advantage of differences between prices for the same financial instruments

on different exchanges.

Let’s image one city with two markets.

On one side, we have Market A and on another – Market B.

There are two identical products on these markets, for example, oranges.

Oranges on the Market A and oranges on the Market B are similar, however, the price of

one orange on Market A is 50 cents, and the price of a similar orange on Market B is 1

dollar.

How can we take advantage of this situation?

We can start buying oranges on Market A, and selling them on Market B.

If we have 100 dollars, we can buy 200 oranges on Market A where their price is 50 cents

per orange.

Then, we sell these 200 oranges on Market B where their price is 1 dollar.

In the end, we have 200 dollars.

By doing so, we’d need to pay gas fee in order to transport these 200 oranges from

one part of the city to another one.

Let’s say, the gas price is 15 dollars.

This means that we have to spend our initial 100 dollars to buy oranges + 15 dollars.

In the end, we get 200 dollars back.

Therefore, the actual profit makes 85 dollars.

We can repeat this process until the prices of oranges would be almost identical on both

markets.

By using this price difference, we also influence demand and supply for oranges on both markets.

The price of oranges on Market A will increase since we increased the demand for oranges.

However, on the Market B, the price of oranges will start to drop, since we increased the

supply of oranges.

This is a very simply analogy that explains arbitrage.

So what if I told you this kind of situation exists on financial and crypto markets?

It’s very common to have same coins, tokens or currencies priced differently on different

platforms, and you can use this situation to earn profits.

In fact, it’s not a new technique.

It has existed on financial markets for a while.

When it comes to crypto, there are plenty of exchanges.

There are so many trading pairs and assets on these exchanges.

Their prices vary.

Essentially, we have big exchanges with a pool of liquidity, and we have small exchanges

that follow big exchanges’ prices.

These prices aren’t usually updated in real time.

This is why an arbitrage opportunity exists.

Crypto arbitrage helps traders to take advantage of the price differences by buying cryptocurrency

on one exchange and selling it on another immediately.

If you’d like to see an example on real exchanges, you can go to CoinMarketcap and

check different exchanges and their asset prices.

In most cases, you won’t find big differences.

However, sometimes there are huge price differences, such as 2, 5 or even 15% for some trading

assets.

Sometimes different exchanges do promotional activities when you can get additional coins

or tokens of you use specific exchanges and deposit on your account.

You can use it to earn profit.

Different types of arbitrages

There are different types of arbitrages.

-Simple arbitrage -Triangular arbitrage

-Risk arbitrage

Simple Arbitrage

Simple arbitrage means that you buy a coin or token on one exchange and sell it on another

within a short period of time.

You take the risk of transferring coins between exchanges but you earn profit on the price

differences.

Another approach is that you can have currency and fiat on both exchanges and trade them

according to the situation, so there wouldn’t be a transaction acquired at the time of the

operation.

Example, if we have ETH on Binance that costs 2000 dollars, and we have same ETH on Coinbase

with the price of 2050 dollars, we can spend 10.000 dollars and buy 5 ETH on Binance, then

transfer these 5 ETH to Coinbase and sell them, thus getting 10.250 dollars.

250 dollars is the profit.

You should also count the transaction time, gas fees, and exchange rates.

Triangular Arbitrage

Triangular arbitrage is a little more complicated compared to simple arbitrage.

This type of arbitrage usually involves 2 trading pairs of three assets, and there’s

one same asset in these two trading pairs.

Example: we have ETH/USD on one exchange and ETH/EUR on Coinbase.

For example, you buy 5 ETH with USD on Binance, then transfer these ETH to another exchange,

and exchange them to EUR.

Then, you convert EUR to USD and make profit from it.

The complication here is that the process has multiple exchanges you need to take into

account.

However, it can also be on one exchange.

This type of arbitrage is harder to find these days, since there are a lot of robots that

are constantly looking for these kinds of scenarios and using them.

Risk Arbitrage

Another way is risk arbitrage.

To give you an analogy, let’s say there are two companies on the market – company

A and company B. The news come out that company A will acquire company B. The value of company

B will increase as a result of this acquisition.

You can take the risk and buy company B’s stocks.

If the information was correct, your investment will work but if the news were fake, that’ll

lead to losses.

This is what’s called risk arbitrage due the uncertainly inherent to it.

On crypto market, you can hear about a promising coin or token that’s getting listed on an

exchange or a cooperation between multiple projects.

This creates behavior spikes that decide price changes on multiple exchanges.

There multiple ways how you can use arbitrage techniques to earn money.

For example, you can use fiat or even futures long or short orders after you find a difference

on the markets.

Let’s say, we see ETH on Binance with the price of 2000 dollars.

2100 dollars is the price of ETH on Coinbase.

Thinking that there will be a lot of people exploiting the arbitrage situation, we reckon

that the price will eventually be almost identical on both exchanges, let’s say 2050 dollars.

So what we do is that we open ETH long position on Binance and a short position on Coinbase.

After the prices near 2050 dollars, we close both positions and make profit.

The advantages of arbitrage trading is that the risks as associated with it are generally

low, however, they are still present and we’ll discuss them next.

Risks

- Do not use not legitimate exchanges.

The exchanges you can’t trust or those that can be easily hacked increase your risks to

lose your deposit - Network and withdraw speed.

As you find a good situation on the market, you need to find out the network speed of

all transactions if you’d like to proceed.

Often, the window of opportunity is very short and if the transaction speed is slow, you

won’t make profit but lose money - Price adjusters/exchange rate adjustments.

There are multiple systems when it comes to adjusting the prices between exchanges.

You need to monitor the prices constantly to be sure that the opportunity is still there

- Minimum input cost and fees.

You’d need to calculate the minimum input costs, since there are transaction fees that

are particularly important if you do multiple transactions and withdrawals

- Volatility/News.

Count them in.

Depending on the volatility of the pair you’re trading, you can maximize or minimize your

profits.

So while you are executing arbitrage make sure you are constantly monitoring it.

- Terms and services.

Before proceeding with arbitrage on any exchange, understand their rules and terms of use.

Some exchanges have multiple withdrawal limits or even have arbitrage restrictions

- Accounts accessibility.

To do any kind of arbitrage, you’d need to an account.

Some exchanges only enable accounts for people depending on their country of residence.

If your country isn’t on the list, it might be a problem for you.

- Taxes.

Depending on your citizenship or country of residence, different tax rules apply.

Make sure you know them.

How to find arbitrage opportunities?

So how to find these arbitrage opportunities?

Many people do so manually but there are lots of screeners which constantly monitor multiple

exchanges and assets that’ll help you filter the opportunities on the market.

How to execute arbitrage opportunity?

Once again you can do so manually, which might make the process rather complicated and repetitive.

To avoid that, you can use a robot or a bot to help you execute the operation precisely.

There’s a bunch of robots on the market already, but if you have programming knowledge,

you can write a bot script for yourself.

- As I said before, you’d need to calculate the situation precisely.

Also you would need need High network speed and up-to-date news about currencies you’re

looking to arbitrate.

Don’t forget to calculate additional costs necessary to execute it.

Conclusion

It seems that modern technologies reduce certain opportunities when it comes to crypto.

So many automated trading robots constantly monitor arbitrage opportunities and exploit

the system, which is why these opportunities are harder and harder to find.

The more people use this technique; the less opportunities are out there.

There’s no magic formula but knowledge, risk management and self-control.

But like any good trading secret or system, it can either be a gold mine or a hole, depending

on how many people use it.

So calculate your risks and do your research before doing arbitrage.

This video doesn’t contain advice provided by a financial advisor.

The information is my experience and knowledge.

I’ve been using arbitrage for a while, however, such opportunities are now rare.

Some traders, though, use this system constantly and it works for them.

If someone tells you about a system with no risks, that’s a lie.

There are always risks, though they can be low or high.

This was our video for today.

Please, don’t forget to subscribe for more videos about investing, trading and crypto.

I am Vlad, see you next time.