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Everything You Need to Know About Crypto Arbitrage

12 min read
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There’s little secret that there’s money to be made on the crypto market. Many people who invested early in bitcoin have gotten filthy rich and some even claim that it’s not too late to join the train.

But did you know that there’s a more risk-free way of making money than relying on the crypto currency’s volatility? It’s known as arbitrage trading and is a well-proven strategy. In this article we tell you all about it!

What is Crypto Arbitrage?

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It’s a trading strategy that takes advantage of Bitcoin and other crypto currencies having different price settings on different exchange sites. As you may or may not know, there are many platforms that can be used to buy and sell crypto currencies, such as Coinbase, Binance and Kraken, and these sites do not always (or even ever) have the same price for their currencies.

When you arbitrage crypto you are playing the exchange sites against each other to make trades that are guaranteed to give you a profit. Let’s illustrate this with an example:

Coinbase is selling bitcoins for $14,000 while Binance is selling them for $13,800

To make an arbitrage crypto trade you simply purchase a bitcoin on Binance and transfer it to Coinbase where you sell it. This way you would have made an easy $200 with our example.

It’s not just as easy as it sounds though as you have to take certain risk factors into account, such as fees that are involved among other things. The above example, where crypto currencies are transferred between exchanges, is not the only way to arbitrage crypto either.

Stick around and we’ll tell you about another way shortly along with more risk factors. But before that, let us answer the question that you surely must be thinking about – how much is there to earn?

How Much Money Can You Make With Crypto Arbitrage?

These days it is definitely not as much as it used to be, but if you do things correctly you could probably average a good $100 – $300 per day. This is based on the fact that you’re finding and taking advantage of about 10 arbitrage trades on crypto currencies every day.

You see, price differences tend to vary between 0.2% and 2.5% which means that each trade could yield you a profit of $10 – $50. This does of course provide that you have a large budget to work with as for 1% difference to yield a $20 profit (as an example) you would need to buy for $2000.

You may be wondering if you could live off the money you make from crypto arbitrage? Sure, but you must know that it’s not going to be easy. Prepare to work for it and prepare to use a bot to help you do automatic trades. You can read more about this later in the guide.

How to Effectively Arbitrage Trade Crypto to Make Money

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There are two types of crypto arbitrage methods that can be used to make money that come with their own pros and cons:

  • Trading cryptos between exchanges
  • Using Triangular arbitrage trading

Below we have explained how these two methods work and how they can be used to effectively trade crypto currencies by using the right arbitrage strategy. There are a couple of risks involved that you want to eliminate such as fees, slippage and price changes.

Trading Cryptos Between Exchanges

As we’ve already mentioned in the beginning of the article, this method is all about buying a crypto currency for a low price on one exchange and then selling it for a higher on another.

A downside with this method is that prices change rapidly and that transfers can take minutes to do. Once you’ve finished your transfer it is very likely that the price has gone up and that it’s no longer profitable for you to sell. This can be solved though; check the answer to the below question:

How to Execute Crypto Arbitrage Trades Fast Enough?

Simply have money stored on both exchanges that you are using for arbitraging. This way you can instantly sell whatever you bought and you will also avoid another downside: fees. All transactions between exchanges come with fees so if you want to make money efficiently from crypto arbitrage trading you want to make as few transfers between platforms as possible.

For this to work you do of course have to have enough money on both exchange sites. For instance, if you buy a BTC on Coinbase you need to have a BTC in your Binance account too. If you do, buying and selling can be done simultaneously, especially if you are using a trade bot.

Using Triangular Arbitrage Trading

Arbitraging crypto using the triangular trading method means trading between three different currencies on the very same exchange site. With this method you’re taking advantage of undervalued prices. It could for instance work like this:

  1. You sell BTC to purchase ETH
  2. You use ETH to purchase XRP
  3. You use XRP to purchase BTC

Here we have basically turned BTC into XRP and then XRP into BTC again, but have used ETH in-between which is the key to making money of this arbitrage trade. If calculations were done correctly, we would end up with more BTC than we had when we first sold them.

A real example with exchange rates could look like this:

BTC/ETH = 33 | ETH/XRP = 1000 | XRP/BTC = 0.000035

  1. Sell 1 BTC to get 33 ETH
  2. Sell 33 ETH to get 33,000 XRP
  3. Sell 33,000 XRP to get 1.155 BTC

Using this method is a bit more complicated than the other as triangular arbitrage trading needs to be calculated, and as prices rapidly change it is not easy finding the opportunities of making money.

You may ask if there’s an algorithm for triangular trading crypto, which would automatically calculate all of this in real time for you. Some sites, such as https://www.bitrage.store/ claim that they have developed a robot using such an algorithm that does it, though we cannot vouch for its legitimacy. Further down in the article you will find a list of more triangular arbitrage bots that can be used.

Hold Stablecoins to Secure Your Trading Profits

You may ask what stablecoins are. These are simply crypto currencies that aren’t volatile. For instance, Tether is tied to the price of the US Dollar which means that its price fluctuations are very small. There are never any big drops as opposed to many other currencies which values’ could drop several percentages in just a few hours.

When it comes to effectively making money with arbitrage trading crypto currencies you don’t want to hold a crypto that’s unreliable; a crypto that could eat up all of your profits in a matter of seconds. You want to hold stablecoins. So whenever you have made a sell you want to spend it on a crypto currency like Tether to secure your profits.

You may ask if you couldn’t just turn the profit into fiat currency instead and use that as a means of buying? The problem with this is that crypto to fiat transfers often have substantial fees which you would be best of avoiding.

Avoid Slippage by Limiting Your Buy Orders

If you haven’t heard about it before, slippage is a term used to describe a crypto trader making a buy order that cannot be filled by the cheapest price because it’s too large. Thus, the total price of the order becomes higher than it should, which may prevent profits to be made from the arbitrage trade. 

As you may or may not know, the prices on an exchange site all depend on what people sell their crypto currencies for. If you want to buy 10 BTC and only 2 BTC are available for $14,000 while the rest cost $14,500, the total price of the order would be $144,000 as opposed to $140,000.

To avoid this slippage from happening, you can simply place limit orders instead of market orders when buying. This option is available on exchange sites and by using it you will never purchase crypto currencies for a higher price than you have asked for.

Consider Using a Bot to Make Money With Crypto Arbitrage

It used to be fairly easy to find arbitrage opportunities as trades weren’t done that quickly. However, these days they often happen instantaneously which has eliminated a lot of the potential. The reason is arbitrage crypto bots that do trades automatically based on programed settings. Every professional trader is using them. So to stand a chance yourself you’re pretty much required to use a bot as well.  

An alternative way that isn’t as efficient, but much cheaper, as you don’t have to pay anything for it, is setting up a spreadsheet in excel that automatically compares exchanges to find arbitrage opportunities. You can read more about this further down in the article along with information on how arbitrage crypto trading bots are setup.

What Platform Is Best for Crypto Arbitrage?

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If you want to become a professional arbitrage trader of crypto you don’t just want to use one platform. It’s good to have as many exchange sites in your portfolio as possible as this will bring you more opportunities for price discrepancies. However, as much as this is true you don’t want to use any exchange either. You want to use those that are secure and offer low fees.

Some exchange sites that fulfill these criteria, which are some of the best platforms for arbitraging crypto include the following ones:

How to Create and Setup Arbitrage Robots for Crypto

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As we’ve already mentioned in the article, using a robot is the best thing you can do if you want to make money from arbitrage trading crypto these days. There are many types of robots to choose from with different uses. For instance, some are only made to follow trends on the crypto market.

For arbitrage, the type of bot you would be interested in is obviously one that is able to automatically find arbitrage opportunities between exchange sites or within the same exchange (triangular arbitrage). To be able to execute your crypto arbitrage trades fast enough you may also want your bot to do the trades automatically for you based on settings that you have given it.

You don’t need to create a crypto arbitrage robot yourself, but there are many that have already been developed which can be purchased or even downloaded for free (with limitations). We will soon tell you about some of the best ones you can use.

What you need to do with your crypto arbitrage robot is setting it up to fit your trading preferences. There is no universal guide on how to do this, but it totally depends on the robot you are going to use. Luckily most of them come with convenient tutorials that you can easily follow to get you started.

What Is the Best Crypto Arbitrage Bot?

Based on user reviews that we have found the best bots for arbitraging crypto currencies include the below listed ones:

  • Blackbird (only for arbitrage trading bitcoin) (free)
  • Cryptohopper ($49 – $99 per month)
  • Bitsgap ($44 – $110 per month)
  • Arbitrage Expert (0.0026 BTC per month or 0.0013 BTC per year)
  • Gunbot (bot with triangular arbitrage algorithm) (0.05 BTC – 0.125 BTC)
  • Coingy (only manual arbitrage trades) ($220 per year)
  • HaasBot (0.026 BTC – 0.075 BTC per year)

Please note that some of these crypto bots only support arbitrage trading when you go for a higher price plan than the basic one. Also note that we personally do not vouch for any of these bots, but we highly recommend that you do your own research.

Like any business there are unfortunately dishonest people out there that make a living off exploits; stealing people’s information and crypto currencies. As it is said that the above listed bots are some of the best for crypto arbitrage they are probably safe. However, for your own sake you should research the one you are going to use very carefully – it is time well invested. 

How to Make a Crypto Arbitrage Spreadsheet

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If you don’t want to spend money using a bot, it’s possible to create a spreadsheet in excel that automatically compares prices on crypto platforms to find arbitrage opportunities. In difference to some bots that to trades automatically you would have to make the trades yourself. However, this is still a great way to get started with arbitrage trading crypto without spending a dime for it. You may want to upgrade to a bot later on though.

Making a spreadsheet for crypto arbitrage isn’t that difficult to do, but to make it as easy as possible for you to understand we will refer to a video that explains the process really well. So if you want to setup a spreadsheet to get automatic updates on crypto prices as often as you choose to yourself, check out this video:

Instructional video on how to build an arbitrage spreadsheet for crypto trading (thank you edgecate)

What Is Wrong With Arbitrage Trading Crypto?

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In difference to some beliefs there is nothing wrong with it at all. You are simply taking advantage of price differences and are not hurting anyone. The only thing that is wrong, which isn’t really associated to crypto arbitrage per se, is when people use bots to manipulate the market.

With the help of bots, people are able to manipulate the price of crypto currencies and make it seem like they are on a bull run when the truth is that it’s all controlled by one person. This is a scam tactic used to get people buying on what they believe is a good opportunity.

Eventually the person behind the scam will sell off everything to make a profit, leaving the people who bought in good faith with a loss. Many investors have been burnt this way, especially since the scammer often runs marketing campaigns on forums telling people how good the coin is running.

How Does Arbitrage Affect the Crypto Market?

It makes prices between exchange sites more stable, which is a good thing for everyone except the arbitrage trader himself. Simply because the more arbitrage traders there are, the less opportunity there is to find price differences.

What Percentage of All Trades Are Made by an Arbitrage Crypto Bot?

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As of 2020 it is estimated that the normal stock market is run mostly by bots – a number of 80% of all trades is what’s being thrown around. Nobody knows exactly what percentage of trades are made by an arbitrage bot on the crypto market, but it’s probably not wrong to assume that the number is close to 80% here as well. This tells you a lot about the actual chance you have of making good money from arbitraging crypto – a bot is more or less required.

Is Crypto Arbitrage VIP a Scam Site or a Legit Service?

Speaking about crypto arbitrage bots we touched on the subject of dishonest people working the crypto market to scam people on their hard earned money. Unfortunately this is not an unusual thing. One well-spread website that is talked about a lot is Crypto Arbitrage VIP which promises its users a 340% return on their investments. This is obviously a scam. If you’re reading this do not invest in the website as you will lose your money.

As an inexperienced crypto trader it is very easy to get burnt. The best advice that we can give is that if something sounds too good to be true it is 99 out of 100 times. Nothing comes easy – you have to work for it. A promise of a 340% return should be a HUGE warning sign for anyone, but many have still been seduced and invested in Crypto Arbitrage VIP and websites similar to it.