Added: 21.12.2020
Edited: 05.01.2023

Crypto Arbitrage - Types, Pitfalls & Tips [Safetrading 2023 Guide]

Crypto arbitrage is the simultaneous and synchronized purchase and sale of an asset in order to profit from price inequality in two different exchanges.
Cryptocurrency trading is more popular than crypto arbitrage. This happens because 80% of beginners start with well-known trading based on their own analytics or cryptocurrency signals.
Only when they notice that each exchange has a different price, a calculator turns on in their heads, which shows that you can get a good arbitrage profit because of these differences.
In this article, we talk about the following points:
  1. What Is Arbitrage In Crypto?
  2. Types of Cryptocurrency Arbitrage: Crypto-to-Crypto & Crypto-to-Fiat
  3. Crypto Arbitrage Pitfalls
  4. Crypto Arbitrage Strategies & Tips

Are you ready to find out about another type of getting income?

What Is Arbitrage In Crypto?

The definition of arbitrage is quite simple, and it is much more familiar to you than you might think.
You've probably heard that a lot of people are selling imported cars. The bottom line is this: a person buys a car, for example, in America or Germany, and then resells it at a price higher than what he bought.
Crypto arbitrage is even easier - you don't even need to perform any additional actions - just buy a coin and sell it on an exchange where its price is higher. Of course, everywhere there are "buts", and we will talk about this a little later.
Let’s use an example to define arbitrage.
Today, on the 25th of November the price of ETHUSD on BitBay is $580.00.
crypto arbitrage opportunity

And on Coinbase it is $593.78 at the same time.
what does arbitrage means

If you could:
  1. transfer fiat from your bank account to BitBay,
  2. buy ETH with that fiat on BitBay,
  3. transfer ETH to Coinbase,
  4. sell ETH on Coinbase,
  5. get the ETH back to your bank account

...all instantly and with no fees - then you could get back more than 2.3% at once with very little risk.
It seems that everything is simple and fast, but this type of earnings also has its risks.
Each type of crypto arbitrage is different, so risks and benefits are also different. Let’s check the types of BTC arbitrage before discussing their pros and cons.

Types of Cryptocurrency Arbitrage: Crypto-to-Crypto & Crypto-to-Fiat

At the highest level, two types can be considered: crypto-to-crypto arbitrage and crypto-to-fiat arbitrage.
Let's see what these two types of arbitrage are, how difficult it is for each to benefit, and how you can use them.

Crypto-to-Crypto Arbitrage

This arbitrage option is available when the price of one crypto coin that you can buy or sell for another coin is higher on the first exchange than on the second one.
what does arbitrage means

Crypto-to-Fiat Arbitrage

This arbitrage method exists when the amount of cryptocurrency you can buy or sell with fiat money is greater on the first exchange than on the second one.
For example, if there is a $50 difference in BTC price in USD on two exchanges, there is the possibility of Bitcoin arbitrage, and we have already discussed this arbitrage example above.
The main “but” of using crypto-to-fiat arbitrage is the time and fees you have to pay to transfer your USD to the exchange account.
If you are trading on exchanges within your home country, it may take up to 3 days to transfer fiat to the exchange and, also, some days to withdraw it from the exchange.
All of these can affect your arbitration.

Crypto Arbitrage Pitfalls

A cryptocurrency arbitrager should completely understand how crypto coins differ from fiat and what features of the crypto market should be paid attention to.
When dealing with cryptocurrency arbitrage trading, you need to consider the following nuances:
Large start-up capital. Often, the difference in the rates of cryptocurrencies is small, so to get a good income, you will need to invest a large amount of money.
High risks. Cryptocurrency is a volatile financial instrument, which means that the price on it can fall faster than the trader can sell it profitably.
Complicated calculations. It is important to keep information about the fees and limits of specific platforms handy. The information is necessary so that the trader can quickly calculate cryptocurrency profit from the transaction and plan the risks.
Unexpected circumstances. The time of the transaction on the exchange may vary. If it takes too long to confirm the transaction, the trader risks losing part of the income.

Crypto Arbitrage Strategies & Tips

You've probably noticed that there are many fees and time delays between you and the Bitcoin arbitrage crypto opportunity.
what is arbitrage in finance

With that being said, there are several strategies that can help you take advantage of arbitrage crypto opportunities when they arise.
how to arbitrage bitcoin

If you have stored your BTC and fiat combination across multiple exchanges, you could theoretically take advantage of the arbitrage crypto opportunities between these exchanges because you don’t need to wait till the transfer from your bank account is completed.
arbitrage trade

You may even make your own crypto arbitrage calculator or find something online. Also, don’t forget that there are many crypto arbitrage bots but you need to be attentive and check each of them before starting to use them.

Conclusions: Crypto Arbitrage

Crypto arbitrage is available to everyone.
This type of earnings is completely legal, however, when working, some difficulties may arise that must be taken into account. Almost the same goes with copy trading tools. Does copy trading work? Yes, but again, it's not 100% accurate.
To other conclusions:
1. A good income will require a large investment.
2. The efficiency of arbitrage trading largely depends on understanding the specifics of the digital asset market.
3. The open-access market has all the tools you need to start making money on the difference in rates.
4. Arbitrage is also a helpful tool if you want to understand the mechanism of how does Forex trading work.
An alternative to making money on arbitraging is trading. Safetrading can offer you the full complex for cryptocurrency trading - crypto signals channel, crypto wallet, and bot.
The choice is up to you.
See you :)