Arbitrage is a trading technique in which cryptocurrency are bought and sold on many different exchange and at different price. According to Investopedia, Arbitrage simply means exploitation of price different similar or identical or similar financial instrument on different market.
How Bitcoin Abitrage works::
Am sorry, for the experts, i love explaining stuff is simplest term possible as lots of newbies flow into the cryptocurrency world daily. Bitcoin Arbitrage is simply buying bitcoin on an exchange where the price is low and selling it on another exchanger where the price is relatively high. price of bitcoin differs with few dollars from one exchange to another , lets use a common illustration below for a more simplified explanation.
Lets say Dreamchasser bought $10 worth of bitcoin on coinbase at $2,420 and sells of on BTC-E at a price of $2,450, thereby making a woeful $3 per $1 worth of bitcoin sold..
Total profit from such would be estimated to
BUYING @ $2,420 * $10 = $24,200
SELLING @ $2,450 * $10 = $24,500
making a profit of $300, that why arbitrage is called exploitation of price..
Don’t get too exited, its not that easy as there are some challenges
- Transaction fees: you will agree with me that bitcoin transaction fees are quite enmerous, and thus reducing your profit margin..
- Delay in transaction confirmation: Opps, you can all relate..
- Fear, Yeah while you are still contemplating whether to buy the damn coin or not, the price is increasing .. lol
How to overcome the challenges
For those still using bockchain.info wallet for trading, i would have said you are in the 90’s, but i wont even though i just did.. well blockchain.info is a good and secure wallet for storing bitcoin, but i wont advise a trader to use that for trading. To tackle issues of high transaction fees and delay in confirmation , i would suggest you get a coinomi wallet another other good wallet out there.
My view about bitcoin arbitrage is that you can never loose.. WHY??
In case you arbitrage 10$ worth of bitcoin and $2,450 but the price on other exchange had come up and there are just slight difference between the price, you can easily turn it to HODL
Yea, my favorite word, buy and hold till the price increase, then you make your profit.. its doesn’t really matter how you mixed it up, either arbitrage, hodl, trade, what matters is how much profit you made on you bitcoin..
Be rest assured that bitcoin arbitrage hold a huge earning potential within , but it not meant for the faint hearten.. free free to share your thoughts and also share your arbitrage experience.