Easy Crypto Arbitrage: Risk-Free Trading Explained With Examples

New traders will agree that the crypto trading world is intense. With volatile prices, charts, and the risk of losing funds, many traders hesitate to participate. But, what if there was a method that did not require speculation and rather focused on discrepancies in prices? Enter crypto arbitrage.

Crypto arbitrage is one of the most risk-averse trading strategies in the crypto markets. This guide will discuss easy crypto arbitrage, the mechanics of how it works, the reason many people consider it risk-free crypto trading, and the process of implementing a basic crypto arbitrage strategy using relatable examples.

Crypto Arbitrage - What is it?

Crypto arbitrage is buying the same crypto asset on different exchanges and selling the one bought for a cheaper price. Most traders only focus on profits looking for changes in market prices. Since crypto exchanges function independently, market prices are not the same. Here is where the cryptocurrency arbitrage trading strategy comes into play.

Check exchanges for crypto price options. Remember that there can be price differences between exchanges. Order books for crypto exchanges contain a limited number of orders. For example, one exchange may sell bitcoin at $40,000, while another may sell it for $40,200. This price difference is an example of an arbitrage opportunity.

Why DDR Is an Inevitability of the Fragmented Nature of the Crypto Market

Because of the fragmentation, differences in demand and supply for a crypto asset can be arbitraged. Each exchange has its own seller and buyer dominance differences. Demand also varies by region and the value of the local currency, which can lead to differences in exchange prices per crypto.

Increased DDR can even indicate the potential for easy crypto arbitrage.

Is There No Risk In Crypto Arbitrage?

A more thoughtful explanation is required to understand the so-called risk-free crypto trading. From a theoretical perspective, price direction is not a risk factor. Even though price direction is not a factor in the equation, there can be missing operational hurdles. One example would be transfers not being completed in time.

In the crypto world, arbitrage is viewed as one of the most risk-free methods of trading that a novice can deploy.

Types of Crypto Arbitrage Explained Simply

While there are many different types of cryptocurrency arbitrage, beginners should focus on the types with less risk. 

Arbitrage Between Two Exchanges

 

In most cases, this is where arbitrage starts. It is generally the most accessible type of cryptocurrency arbitrage because it can be done with very little money. It is also very easy to understand. You place an order to purchase the cryptocurrency on one exchange for less than what it is listed for on a second exchange. 

This will work most efficiently if you already have money in both exchanges. That way, you do not have to wait for one exchange to send money to the other exchange to complete the transaction.

 

Arbitrage Within One Exchange

Sometimes, there are discrepancies in the cost of a cryptocurrency within a single exchange. This type of arbitrage is called triangular arbitrage, where you pick three different cryptocurrencies and start with one and end with the original. 

In other words, you might do a transaction with USDT for one Bitcoin. Next, you might buy an Ethereum. Then you sell the Ethereum for USDT again, but now you have more USDT than when you started. 

This type of arbitrage is more complicated, and you may need to complete these transactions using a bot, which can cost some money to set up.

 

Cryptocurrency Arbitrage Across Borders

Sometimes, when looking at arbitrage in different countries, the main factors to track are the different regulations in other countries, the banking systems, and how cryptocurrency can be transferred. 

 

Easy Crypto Arbitrage Example for Beginners

Let’s understand easy crypto arbitrage with a simple example.

Let’s say Bitcoin costs $30,000 at Exchange A, but $30,300 at Exchange B.

You buy 1 Bitcoin from Exchange A at $30,000.

Then, you sell this Bitcoin at Exchange B for $30,300. This means your supposed profit is $300. When you withdraw those coins, if we say your trading fees are Rs. 80, now your profit is Rs. 220. Here, you don’t care if the price of Bitcoin increased or decreased; you only care about the price difference.

 

How to Start Crypto Arbitrage Step by Step

• You don’t need charting skills to start crypto arbitrage. You only need discipline, speed, and a plan. You need to have accounts at least 2 exchanges. Make sure KYC is done and you can deposit and withdraw.

• Also, you need to deposit funds to both exchanges ahead of time. If you need to transfer coins during an arbitrage trade, you would most likely lose the opportunity. Now, keep an eye on price disparity for coins like Bitcoin, Ethereum, and stablecoins.

• If you see a gap after the fee, buy coins from the first exchange and sell to the second exchange. Do this at the same time. Now, keep your money in the first exchange and coins in the second exchange for the next trade.

 

Best Currencies for Bitcoin Arbitrage Trading

• Not all cryptocurrencies can be used for arbitrage; liquidity and synchronisation matter.

• An arbitrage investor can use Bitcoin, Ethereum, and stablecoins such as USDT and USDC for arbitrage as they can be traded on almost all exchanges and have great liquidity. USDT and USDC can also be used due to their fast transfers and low volatility.

• Although some low liquidity coins have bigger price gaps than Bitcoin and Ethereum, they may be risky, as it may be difficult to execute trades.

 

Fees Affecting Crypto Arbitrage

• New investors in arbitrage trading usually forget about fees.

• In trading cryptocurrencies, arbitrage investors may face trading fees, withdrawal fees, fees for mining blocks, and even deposit fees, which may certainly lead to losses. The price gap traders see may be misleading and the losses could be blocked by the fees.

• Calculating net profit (the price gap minus all the other costs, such as fees) must be the first step for any crypto arbitrage strategy.

 

Best Arbitrage Trading Tools

• Arbitrage trading can be done without any tools; however, it may become cumbersome.

• There are many tools, such as arbitrage bots and price comparison platforms. These platforms can be used for manual arbitrage trading as they will show the price difference of all the arbitrage opportunities on all of the exchanges in real time and the bots will make the trades on your behalf.

• However, beginners should learn the entire process manually before depending on automation. Bots need to be set up, have manageable capital, and have regular supervision.

 

Mistakes to Avoid in Cryptocurrency Arbitrage Trading

• Many traders fail in arbitrage, not because the strategy is wrong, but because of the mistakes made in the execution.

• Arbitrage opportunities can be in the balance between exchanges and the rate of data and transactions. A lack of measurable value results in non-linear profitability to accommodate new variables in the market to change.

• Another problem is trying to obtain high utilisation of resources in the spread with high costs, high volume, and congested fees. The goal of sustainable arbitrage is to obtain and hold small values frequently, rather than attempting to capture rare moments.

 

Is Crypto Arbitrage Legal?

• For the most part, the act of handling the electronic transfer of crypto arbitrage is entirely legal.

• Nevertheless, there are potential tax issues. Arbitrage trading is usually subjected to capital gains taxes depending on your jurisdiction.

• Keep a record of your trades and do not hesitate to consult with a tax professional.

 

How Much Capital Do You Need for Crypto Arbitrage?

• With easy crypto arbitrage, you can begin with a small amount of money.

• Starting with a few hundred dollars is good practice. Real profits come with bigger bets. More capital means you can earn real returns with smaller price swings. 

• It's worth noting that taking bigger bets is not the key. It’s all about taking bets that are consistent and manageable. Control the risk. 

 

Can crypto arbitrage be done long-term? 

• It's possible. But the expectations need to be in check. 

• As the market gets more efficient, big gaps in arbitrage need to be closed quickly. But smaller gaps still exist all the time, especially in highly volatile times like crashes or sudden news. 

• For professional traders, arbitrage is not a get-rich-quick scheme. It is a strategy for a steady income. 
  
  

 

Final Thoughts

It doesn’t have to be. Crypto arbitrage is a fantastic way for people to get into crypto without having to risk a price direction bet. When done correctly, risk-free cryptocurrency trading via arbitrage comes very close to being risk-free, while no trading strategy is totally risk-free. Cryptocurrency arbitrage trading can become a dependable and repeatable method with careful planning, fee awareness, and focused execution.

One of the best things you can do if you're new to cryptocurrency and want to learn how to trade without stress is to start with a basic crypto arbitrage approach.

 

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.