You can make money with crypto arbitrage by leveraging various automated crypto arbitrage scanning software. Learn more below.
Arbitrage trading is considered one of the most profitable ways of trading the financial markets and also one with considerably low associated risks.
In crypto, arbitrage trading is a common practice, carried out across both centralized and decentralized exchanges. In this article, we'd discuss how to arbitrage cryptocurrencies effectively and the best tools to use for maximum results.
Understanding Crypto Arbitrage
Crypto arbitrage involves the buying of cryptocurrencies or assets from an exchange or trading pair of a lower price and instantaneously selling for profits on another exchange or trading pair.
Crypto arbitrage trading is considered low-risk trading because traders sell off assets immediately. The key is to exploit the price difference between markets. Traders typically scan the markets for coins or assets with inconsistent market price, buy from the exchange or trading pair where the price is low and sell off on another exchange or trading pair where it is higher.
This process is repeated over and over again until both exchanges or trading pairs now have a uniform price, making crypto arbitrage trading not only low-risk but also highly rewarding.
The key to understanding crypto arbitrage trading lies in understanding how cryptocurrency markets work. When you look at popular centralized exchanges like Binance, Kucoin, or OKX, you find thousands of coins actively traded across so many pairs.
For example, Bitcoin could have hundreds of pairs with other crypto assets on these exchanges. The not so obvious part of all exchanges is that they don't guess the prices of these crypto assets at any time, rather, they rely on so many in-house or third-party data providers to feed their systems with the current market prices or value of all assets or currencies listed on their platform.
This is what essentially allows the system to maintain stability in its trading platform that is uniform with external trading platforms as well.
That said, it can't always be stable!
Sometimes data providers experience service disruptions that affect the data they pass onto their trading platforms partners, thereby causing the asset markets to have values not consistent with the broader ecosystem. At this point, traders are presented with an arbitrage opportunity.
It is also important to note that this isn't the only instance where an arbitrage opportunity may come forth. In an event of high market activities, prices across various trading pairs of a particular asset may not be consistent, presenting traders with opportunities to profit without holding any asset.
A Brief Look At Types Of Crypto Arbitrage
There are numerous types of crypto arbitrage or arbitraging strategies but we'd be looking at 3 common types.
● Cross-Exchange Arbitrage
Cross-exchange arbitrage as the name implies, involves arbitraging across exchanges. A cross-exchange arbitrage trader typically buys a specific crypto asset, say Bitcoin, on one exchange where the price is low and sells it off on another exchange where the price is higher.
This is the most common form of arbitrage trading evidently practiced in both centralized and decentralized exchanges.
● Triangular Arbitrage
This a complex arbitrage strategy involving 3 different crypto assets pairs to be traded within the same exchange or across different exchanges. The more trading pairs an asset has, the higher the likelihood of having occasional inconsistency in price value across those pairs and exchanges. So traders actively watch for arbitrage opportunities across various trading pairs.
A triangular arbitrage can go from Bitcoin, to BNB, to ETH and back to Bitcoin for a profit, provided there's some level of price difference across these pairs that would leave the trader in profit.
● Inter-exchange Arbitrage
Inter exchange arbitrage simply involves buying and selling on the same exchange across different pairs. It's important to note that this differs from triangular arbitrage in that inter-exchange arbitrage primarily involves two trading pairs.
What's an arbitrage scanner and why do you need it to make money with crypto arbitrage?
We're glad you asked.
Arbitrage trading is only possible where there's a shift in asset market prices and the last time we checked, there are over 20,000 cryptocurrencies, over 800+ decentralized exchanges, so many centralized exchanges and over 2 million liquidity pools on Dexes and we can't even put a number on how many trading pairs there are on centralized exchanges.
This number tells us one thing: it's not humanly possible to manually scan such a large ecosystem and profit by a large margin. So, this begs for an automated system that can run these checks a lot faster than a human and present reports with key analysis for security.
The Arbitrage Scanner is a tool just for this. It's important to note that it is not a trading bot, but an arbitrage scanner, as the name implies. It simply scans for arbitrage across blockchains, exchanges, currency pairs and so on.
With just a few premium button punches, you'd get a list of available arbitrage opportunities.
You don't need a crypto trading bot if you're OK with manually trading with the data you get from the arbitrage scanner. However, using an automated bot would be helpful for a couple of reasons.
First of all, the arbitrage scanner can dig up addresses that actively arbitrage trade, with a crypto trading bot like Dexbot, you could simply set your bot up to actively copy their trades.
Dexbot has a couple of features to safeguard your trading including alerts when developers remove liquidities from pools, anti-honepot protection, anti-blacklisting and so on. It is important to note that DEXBOT only trades on decentralized exchanges, not on centralized exchanges like Binance. To get crypto trading bots for centralized exchanges, check out our complete list of best crypto trading bots for both CEXes and DEXes.
Secondly, arbitraging with crypto trading bots connected to your exchange accounts gives you an edge over every trader as your execution rates would be higher than the average trader.
Making money with crypto arbitrage trading can be a handful but when working with automated software design just for the job, scaling to profits becomes much easier.
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