If you know what you are doing when trading cryptocurrency then you basically have a licence to print money.

cryptocurrency arbitrage


If you don’t know what you are doing then you could bleed money faster than you could throw your wallet out the window…

Things you need to know

1. Know the difference between Bid and Ask price.

When trading cryptocurrency there are two different prices you need to look at. The price the instrument is selling at and the price you can buy it at. The difference between the two is called the spread. More on these terms in just a minute.

What this means is if you were looking at two different cryptocurrency exchanges and you saw the ASK price (what you will pay) is lower than the BID price (what you can sell) then this is a profitable trade.

If the ask price on one is only lower than the ask price on the other exchange but not below the bid price then this is a losing trade – in other words, don’t do this trade.

What do the terms Bid and Ask mean?

Bid: If you are selling cryptocurrency on the market you will get the bid price
Ask: If you are buying cryptocurrency on the market you will get the ask price. (Typically the ask price should be higher than the bid)
Last price: When buyer and seller make a transaction, that transaction price is called the last price.
Spread: The difference between Bid and Ask is the spread.

To buy you can post a bid, or buy from the ask price. To sell you can post an offer, or sell to the bid price. When a buyer and seller meet the trade is recorded, with the most recent transaction being called the Last Price.

Trading example: If the current Bid Price for the BTC/USD is $9,990 and the current Ask Price is $10,000 on Coinbase.

Then you see the current Bid Price for the BTC/USD is $10,300 and the current Ask Price is $10,310 on Livecoin.

There is a potential arbitrage profit to be made.

You would simply purchase on Coinbase at $10,000 then transfer your BTC over to your Livecoin account and immediately sell it for $10,300. This would give you a 3% gain (less fees) with zero risk (with optimal transfer speeds)

On a $1,000 trade this would equate to a $30 profit. This may not seem like much relative to your trade but if you can transfer immediately then we are talking about trading for profit with ZERO risk!

Imagine the potential if you are repeating this numerous times each day….

2. Trading Cryptocurrency Transfer Times

Cryptocurrency arbitrage on the stock market is extremely hard to come by, if not impossible, as there are bots that pick up these differences in milliseconds and trade them automatically.

Finding Crypto Arbitrage trades are easy but you have to be aware that unlike the stock market that has been around for a long time and is incredibly streamlined. Crypto sites and wallets have some lag time between them.

Depending on the cryptocurrency you are trading and the also the cryptocurrency exchanges you are trading between you may be looking at seconds or you may be looking at hours!

If it’s the latter then you really need to be weary as what starts as a winning trade may turn out to be a very costly mistake.

Crypto currencies are incredibly volatile so the difference between seconds and minutes can make a huge difference to your bottom line.

Do your research.

Cryptocurrencies are continually evolving, as are the cryptocurrency exchanges so transfer times are getting better.

Search Google for the times exchanges take, ask around on crypto forums or you may want to start with some smaller trades to ‘test the waters’ when trading cryptocurrency.

If you were to try with a $100 trade and you lost 3% it would only equate to $3. On the flip side if you found a couple of great exchanges to exploit arbitrage trades with then that $100 trade could earn you an absolute fortune!

If you find a few currencies and cryptocurrency exchanges that are quick then stick with them. Watch the markets and start printing money!

Also, be sure to factor in your own Internet speed and connection. Ideally the faster the better and certainly one that does not drop out intermittently…

3. Trading Cryptocurrency Transfer Fees

Trade and transfer fees – the crypto marketplace is getting more and more competitive so fees are getting lower all the time.

There is no point quoting fees here if they have changed by the time you get to start trading cryptocurrency.

DYOR – Do your own research!
Once you have then factor this into your arbitrage equations.

For example if your total fees for trading and transfer equate to 1% of transaction then it would look like this (using last example):

Transaction + $1,000
Trade Profit (3%) = $30
Fees (1%) = $10
Total profit after costs = $20
This is still a highly profitable trade

4. Is Your Cryptocurrency Accepted on That Exchange?

Just because you can buy and sell a certain cryptocurrency on both cryptocurrency exchanges you may not be able to transfer that cryptocurrency directly between the two.

Check that the cryptocurrency you plan on using can be traded and ALSO transferred between your chosen sites.

5. Can you deposit and withdraw on your chosen exchanges?

trading cryptocurrency deposit withdraw

There’s an example of cryptocurrency arbitrage previously given where Bitcoin had a $4500 spread between US and Korean exchanges.

Unfortunately if you didn’t have a Korean passport at the time then you could not withdraw or transfer funds OUT of the Korean site (of course they were still taking deposits). If you could have I would be a billionaire!

Perfect for the dual citizens out there but for the other 99% of the world’s population it’s not great. So make sure you research your sites and if you can deposit and withdraw freely.

Some cryptocurrency exchanges allow fiat currency to deposit, others are cryptocurrency deposits only. And then there are some cryptocurrency exchanges that allow both crypto and fiat currencies to be deposited and used freely – see these here.

6. Know Who You Trading With

If you are buying or selling to individuals (not purchasing direct from cryptocurrency exchanges) then be sure you know whom you are trading cryptocurrency with.

You may strike a deal to sell one Bitcoin for $10000 on the Open Market and you may know you can purchase one for $9000. Be sure you know who you are dealing with as you may transfer your coin and never see the payment hit your account.

There are reports of cryptocurrency frauds and thieves all through the crypto trading realm.

crypto day trading
cryptocurrency arbitrage accounts

7. Don’t be caught with no money in your accounts

The worst thing is to have empty accounts.

If you know what you are looking for and can see profitable trades right in front of your eyes then its like watching a briefcase full of cash floating away from you while you’re helpless to do anything about it.

Always ensure you have funds in multiple accounts so you are ready to pounce when you see trades ripe for the picking.

8. Volume is Key!!

It’s all well and good to find a huge differential in prices on two different exchanges but if one or both of the cryptocurrency exchanges only have very light volume then you may not be able to get in and out of your trade quickly or profitably.

If a cryptocurrency has low volume then typically you will make a purchase, put it back on the market and there are no buyers so you will be left holding your stock for what could become a very long and expensive time.

That’s why the lesser-known altcoins may look like they have the greatest chances for arbitrage but without liquidity (volume) there can be no trades.

Look for gaps in the coins with high volumes – on all cryptocurrency exchanges you are trading with!

cryptocurrency trade volume

9. Don’t get fooled by the ‘Pump & Dump’

Pump and dump is a strategy used by groups with large pools of money or incredibly wealthy individuals with the same stockpiles of cash. The crypto marketplace is not yet regulated like the stock market is so it is incredibly easy to manipulate if you have the money needed and the knowledge to do so.

bitcoin bubble

What normally happens in a pump and dump is the investing group will buy a coin when it’s low.

As they start to ‘pump’ a lot of money into that coin it’s value rises. Other punters in the marketplace will see the coin skyrocketing and will want a piece of the action and follow suit. This starts a buying frenzy and the coin continues to increase without the need of the initial investors.

Once the initial players decide to pull the pin the exact opposite occurs. They ‘dump’ the stock quickly, this is done easily considering the buying volume they created in the buying frenzy.
That’s one way to make fast money, the trouble is if you aren’t in on the pump and dump then your funds will get trashed!

You will see the value of the coin drop at an alarming pace.
If you are looking at arbitrage, you definitely want to stay away from trades at times with high volatility like when there is a pump and dump on. By the time you transfer and try to sell your stock you may have not only lost your profits but you may have incurred a heavy loss.

Crypto markets are highly volatile at the best of times,
don’t make a play when they are at their most volatile – it’s trading suicide!