What is cryptocurrency arbitrage?
On cryptocurrency exchanges, there is a concept known as a “trading pair.” This term refers to two assets that can be exchanged for one another.
On different crypto exchanges, different prices can be set for the same trading pairs. The method of earning income on the difference between these prices is called cryptocurrency arbitrage.
For example, on one crypto exchange, the value of Bitcoin in a Bitcoin/dollar pair may be a hundred dollars less than on another. By buying Bitcoin at a lower price on the first exchange, a trader can sell it at a higher price on the other and earn $100 as a result.
The scheme described above is the simplest. There are more complex ones, in which one cryptocurrency is converted into several others, and then back again.
There are now over a thousand crypto exchanges. Prices on different crypto exchanges always vary slightly, allowing traders to make money. However, manual search is too difficult and tedious. Therefore, arbitrageurs use bots or digital scanners to find differences in the value of cryptocurrencies.
Types and strategies of crypto arbitrage
Depending on where the trader sells and buys cryptocurrency, the following types of arbitrages are distinguished:
- Intra-exchange. In this case, currency trading is carried out within a single crypto exchange. Sometimes the value of the same asset varies in different parts of the exchange. For example, you can buy a dollar on a crypto exchange market and then sell it to another user using P2P. On P2P platforms, financial transactions are carried out directly between users who place offers to buy or sell crypto. Intra-exchange arbitrage also includes transactions between different trading pairs that include one common cryptocurrency.
- inter-exchange. In this case, cryptocurrency is purchased on one cryptocurrency exchange at a low price and sold on another at a slightly higher price. The spread or difference in value arises due to the price lag on small crypto exchanges with insufficient trading activity.
- international. This type of affiliate marketing involves the use of platforms and crypto exchanges in different countries when conducting transactions.
In the “Affiliate networks” section of AffCommunity, you will find crypto affiliate networks that will help you increase your income.
Publishers conduct such transactions according to specific plans. Most often, they use the following strategies:
- Inter-exchange arbitrage, carried out on CEX, i.e., centralized exchanges. In this case, the arbitrageur buys crypto on one crypto exchange and sells it elsewhere. This strategy is often used by beginners. To avoid commissions, traders replenish their accounts on both platforms, thus avoiding the need to withdraw crypto to a wallet and transfer it to another crypto exchange for sale.
- “Triangular” arbitrage. This strategy exploits the price difference between three types of cryptocurrencies on the same cryptocurrency exchange.
- P2P arbitrage. Trading is conducted only directly with other users. The trader looks for profitable cryptocurrency sale ads, buys the cryptocurrency, and then resells it at the best price.
- DEX arbitrage. In this case, profits are made from the difference in the value of cryptocurrencies in pairs on decentralized exchanges.
- International P2P arbitrage. Money is earned on spreads in different countries. When using this type of international arbitrage, cryptocurrency is purchased directly from a user in one country and sold to a person in another country.
How much can you earn from this?
The income of people involved in cryptocurrency arbitrage can vary. Their monthly profits can reach one hundred, two hundred, or more thousand rubles. The amount depends on the market used for trading, the time spent on arbitrage, the size of the starting capital, and many other factors.
It is advisable to start trading with at least one hundred thousand rubles. With less capital, you risk spending most of your profits on commissions. By investing one hundred thousand rubles in trading, you can earn a profit of 30% to 100% of your initial capital per month. In previous years, this type of affiliate marketing was even more profitable, and the entry threshold was lower, starting at $50,000.
