A Brief Understanding About Crypto Arbitrage in 2023
Why can crypto arbitrage is not a sure-win strategy?
Like many other money-making machines, crypto arbitrage has its own risk. There are several aspects we have to learn to use crypto arbitrage and get a good result effectively. Here are some risks that people face when trading using crypto arbitrage. Read more here: crypto.nl
1. Project with a similar name
Several cryptocurrency tokens available can be bought, and a lot of them use identical abbreviations. For example, a project called ‘SIA’ is a program for a deconcentrated cloud archive solution that has a similar symbol with a different project named ‘SAI,’ and you might wind up losing the coins you have if you mistake those two.
It seems like a fundamental problem, but this problem can be more concerning and risky for a trader because there are many projects using similar abbreviations symbols like Binance with project ‘CyberMiles’ with abbreviation $CMT. Many other cryptocurrencies also use $CMT, an acronym for Comet, another different project. Many more cases like this exist in the list that you will know these cases are a common issue, especially for new traders. What makes it worse is the exchanges are not going to you return your money if you transfer supplies to the wrong wallet address.
In order to not make this mistake, we have to understand the price of one project and its volume. If you find that the price is doubtfully tiny on one of the exchanges, then it might be the incorrect symbol. You can also check if you are trading arbitrage using the right symbol by observing every plan logo and see if it has diverse logos.
2. Exchange wallet not online or in a separate blockchain
Occasionally, exchanges gonna deactivate their wallets for the entire platform or an individual. It happens for some reasons, varying from security concerns to common wallet maintenance. This might happen when you are going to make a good trade. A lot of cryptocurrency exchanges have a page in which you can observe whether the wallet that you are going to use is online. They also inform when the wallet will become online, so you can check the page before you make trades.
Another thing you must do is verify if exchanges give tokens on one blockchain. Because sometimes, cryptocurrencies transfer from a blockchain to the other, like EOS ($EOS) transfer from Ethereum to its main net and make it has two separate wallet addresses.
3. Large price for either deposit or withdrawal
It is common knowledge for traders at all levels that exchanges have withdrawal fees. An example of this is when you need to take your Bitcoin out of itBit, and the charge is 0.00085 BTC for each process, a rather large amount of cryptocurrency.
You have to read again the deposit price and withdrawal price on one and the other exchanges you use. If you omit this step, then you can miss all your possible profit in charges. To solve this trouble, you can estimate the total expenditure before making a trade. You can check https://withdrawalfees.com/exchanges to see all the expenses for the majority of big exchanges.
4. Insufficient number of volume
Prior to start trading, it is crucial to find out if there is adequate volume to conduct the trade-in relevant exchange. Many cryptocurrencies are removed from the list because the importance of their trade is insufficient. For example, if you purchase coin X in Binance and sell the coin in Kraken, but nobody wants it, you will end with many coins you cannot trade and lose much money.
You can get good trade with arbitrage, but one wrong move can make you go back to where you started. It is further conceivable that the money has an amount, but you are not able to trade it at the amount that you want. To avoid this issue, you can keep observing the order book from the exchange to make sure if the transaction is moving or not.
5. Draw and discard schemes
Draw and discard is one way to scam users by deliberately swelling an asset’s price by giving fake information, fake good news, and price action to sell many coins into a huge profit.
You can check if you are purchasing a draw and discard scheme by using a small technical examination, and the clues can be gotten by watching on volume and one-minute graph amidst other T/A indicators.
Crypto arbitrage trading in short
We already discussed the risk in crypto arbitrage, but what is crypto arbitrage? Arbitrage trading is when a trader purchases an asset in one place and sells it in another to profit from the price difference between markets. For example, you purchase your Bitcoin in A for $16.000 and sell it in B for $16.020. So you get a profit of $20. In other words, arbitrage trading is about finding opportunities across the market to exploit price discrepancies between similar financial assets.
The easy trading strategies in cryptocurrency arbitrage
There are many trading strategies. Some commons strategies used in the crypto industry stated below:
Triagonal arbitrage is an alternative to conventional arbitrage in which you search price chances for an asset. Triagonal arbitrage concentrates on discovering opportunities between three separate assets in one exchange (or several exchanges to get things complex).
This strategy opens many possibilities because exchanges regularly have many numbers of existing trading combinations like Bitcoin and Ethereum. Some of these pairs are inactively utilized, which lets more significant price discrepancies that we can benefit from. First, begin the chain with an asset, and we are going to return at the end of the triagonal loop. The goal is to get more Bitcoin compared with what we began by using price discrepancies among different assets.
It happens when percentage discrepancies occur on the lending platforms of crypto. For example, it is possible to borrow ETH in one forum on a variable percentage of 0.50% then lend the money you borrow in another platform for 3%. This strategy gives you 2.5% yearly revenue. However, this is a precarious move as you are liable to credit repayments and unpredictability of the asset which encloses the credit.