In 2024, cryptocurrency arbitrage is becoming increasingly attractive to investors, and it is important to understand what applications can be useful to succeed in this field. Tracking price differences between different exchanges, executing quick trades and analyzing the market – key aspects that investors pay attention to. In this article, let’s look at the main applications that will help investors in cryptocurrency arbitrage, as well as detail related schemes and strategies to maximize profits.
Big companies and financial institutions are already actively adopting blockchain technology and looking at cryptocurrencies as an alternative asset. This means that cryptocurrency arbitrage could become even more attractive to investors in the future, as trading volumes will increase and therefore profit opportunities.
Cryptocurrency arbitrage could become even more attractive to investors, as trading volumes will increase and therefore profit opportunities will increase.
Regulation of cryptocurrencies and arbitrage
Over the past few years, many countries have been developing and implementing their rules and regulations related to cryptocurrencies. In 2024, regulation is expected to become even stricter and more transparent. This may affect arbitrage, as some countries may impose restrictions on cryptocurrency trading or tax arbitrage transactions. However, with the gradual acceptance of cryptocurrencies in the global community, it is likely that most countries will take steps to regulate, promoting and protecting the interests of investors.
Cryptocurrencies are becoming more accepted in the global community.
Development of technological tools for cryptocurrency arbitrage
Automated trading bots and algorithms are already being used to execute trades. In the future, there may be new innovative tools that will help traders better analyze the market and make better decisions.
Cryptocurrency arbitrage schemes in 2024
In this section, we will present popular crypto arbitrage strategies and methods that traders use. With enough experience and desire, each of these schemes can be modified and adapted to one’s own needs, but at the initial stage, it is recommended to use the already proven methods.
One approach is to use the most popular methods.
One approach to trading that is similar to arbitrage – is to work as a market maker. If you have a substantial deposit, you can place two opposing buy and sell orders at the same time, setting a price difference (spread) sufficient to cover exchange commissions. It is important that the prices are set so that your orders are at or near the top of the order stack. You then have to wait for other traders to start making trades at your prices. This approach can also be seen as currency arbitrage schemes.
The strategy will be successful if two conditions are met:
- You have placed orders on the exchange with not too large volumes;
- You have enough money on deposit to prevent buyers from closing your orders instantly and avoid a sudden price change in either direction.
For example, on the Webmoney exchange to trade on some currency pairs it is enough to have on the account the equivalent of 5 – 10 thousand dollars.
Now regarding popular methods of cryptocurrency arbitrage. These strategies are often used by traders.
Interbank spread
This text explains a basic arbitrage strategy in the world of cryptocurrencies. Its essence is that you look for price differences on different exchanges, buy a cryptocurrency at a lower price, transfer it to another exchange and sell it at a higher price. Your profit – is the difference between those prices.
This method has drawbacks, however. Firstly, the transfer fee between exchanges can be such that it will eat up all your profit or make it very small. Secondly, some exchanges process cryptocurrency transactions for several hours, or even freeze them for a day, as a result of which you may lose the opportunity to take advantage of the price difference.
The advantage of this method is that you can even start with a small deposit.
To partially avoid the disadvantages of this method, you can use transactions via p2p (peer-to-peer). In this scheme, the cryptocurrency exchange blocks only the cryptocurrency itself and immediately transfers it to the buyer’s wallet after the transaction is confirmed. Fiat money is transferred directly between the participants’ bank accounts and becomes available immediately after the transfer. Exchanges via p2p can be combined with spot market trading.
Example: you buy BTC on Binance using your Raiffeisenbank card to pay the seller. You then sell the bitcoins on Bitfinex, and the buyer transfers the money to you on the same bank card, already at a profit. You only need one cryptocurrency wallet and one bank card, although different p2p crypto exchanges will require you to create accounts and verify them.
Exchange Deposit Arbitrage
This strategy is suitable for trading on spot and futures markets and is based on utilizing arbitrage opportunities between different exchanges.
This strategy is suitable for trading on spot and futures markets and is based on utilizing arbitrage opportunities between different exchanges.
You need to allocate your assets – ETH and USDT – equally (50/50) on two exchanges where arbitrage situations often arise. If you have enough funds, you can use more exchanges.
When an arbitrage opportunity arises, you buy and sell assets at the same time without waiting for one trade to complete to start another. For example, if you bought 1 ETH for $1,500 on exchange A, you simultaneously sell 1 ETH for $1,515 on exchange B. After all trades are completed, transfer assets between deposits to reach the 50/50 ratio again. The earned profit can be withdrawn or reinvested, increasing the size of the deposit.
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Intra-exchange triangle
Intra-exchange arbitrage occurs when you take advantage of a difference in price. This involves a series of purchases where at least three different currencies (sometimes even more) are used.
Let’s take Binance, for example. The following exchange rates are set there:
ETH/BTC – 0.069910
ETH/USDT – 1,569.17
BTC/USDT – 22401
If we calculate the cross rate of Bitcoin to USDT (by dividing 1,569.17 by 0.069910), we get 22,445.573. It turns out that the difference is $44.
The advantages of trading within the same exchange include:
- minimal or no commissions;
- fast execution of transactions, which allows you to take advantage of short-term price changes;
- simplified reporting and calculation of profits for taxes if working with only one exchange.
The main disadvantage is usually a small fraction of a percent difference in price.
International Arbitration
This text describes a sophisticated strategy for making money from cryptocurrency based on exploiting the difference in cryptocurrency exchange rates in different currencies. It includes different types of exchanges: on exchanges, off exchanges, P2P and through exchanges.
For example, in Uzbekistan bitcoins are less in demand than in Ukraine, because of which their value in soms is lower. Buying bitcoins through P2P-exchange and transferring money from one country to another, for example, converting hryvnias to soms, you can then sell bitcoins for hryvnias and earn on the difference in exchange rates.
The main disadvantage of such international arbitrage is that such opportunities are hard to find and the process can take several days. However, the advantage is that there can be a significant spread on such “forks” and the arbitration opportunity can remain open for a long time, weeks or even months.
Where to look for cryptocurrency arbitrage bundles
The main question is how and where to find good combinations for arbitrage? There are several ways.
Scanners
One of them is to use specialized programs (web service or application for computer, smartphone) that monitor changes in rates and identify arbitrage situations. Most such programs are paid and cost from $50 to $100 per month. Free programs usually have spread limits or delays in updating data.
As an alternative to paid scanners, you can use free scanners that display the current quotes of currency pairs on various exchanges. Although they do not provide information about arbitrage opportunities directly, it is not difficult to find skewed prices. Just select the currency pair of interest, sort the exchanges by price and manually select those that offer the most favorable quotes.
The main disadvantage of such screeners is slow updating of information. You have to manually refresh the page to see the most up-to-date prices.
Bots
Instead of using scanners, you can use trading robots. These robots automatically find arbitrage opportunities within the exchange and open trades on their own. They are designed specifically for triangular arbitrage and are only suitable for spot market operations.
Telegram channels and chats
Many channels on the internet specialize in analyzing the cryptocurrency market. They quickly publish information about trading opportunities, report on the time it takes to complete transactions and potential profits.
These channels specialize in analyzing the cryptocurrency market.
Most of these channels on Telegram are closed and available only through paid subscriptions, although some provide free advice.
But this method has a drawback: trading signals are seen by hundreds or even thousands of subscribers at a time, making opportunities for profitable trades quickly disappear. This approach can be useful for beginners, especially at the initial stage, when they have no experience in trading yet.
Youtube and themed forums and groups
When looking for trading signals, you should not turn to YouTube channels and forums. Due to the fact that publishing videos and involving users in discussions takes time, the relevance of information is lost quickly. However, this does not mean that such resources are useless. Bloggers and members of the cryptocurrency community share useful information: where to look for favorable offers, on which platforms they most often occur, where commissions are lower. Sometimes they even share ready-made examples, for example, on international arbitrage.
We are convinced that it is better to understand the principle once and maximize the benefits than to blindly follow other people’s advice and limit yourself to small benefits.
Manual Search
Manually searching for arbitrage situations is time-consuming and requires effort, but it allows you to better understand market trends and trading behavior. This approach eliminates the risk of being cheated and losing your deposit to fraudsters, and it does not require any financial expenses. You can start with a small deposit, for example, from 1000 to 5000 hryvnias to learn from your own mistakes and gradually increase your capital. After gaining experience you can move to automated trading, using bots and other tools.
Manually searching for arbitrage situations doesn’t require much technical skills, but be prepared to spend a lot of time analyzing many pages with offers and quotes.
The search algorithm includes the following steps:
- Make a list of three to five favorite exchanges, as you learn the list can be expanded to ten or more sites.
- Select currency pairs for trading, they should be liquid, with good trading volumes.
- Compare the prices of the same pair on different exchanges, check whether the spread overlaps the transfer fees.
- Use screeners to simplify the comparison of quotes on different exchanges.
- Use online calculators to calculate potential profit.
Don’t rush to open trades. Carefully calculate everything. Perhaps the arbitrage situation will disappear in the process, but it is better to miss an opportunity than to incur losses. Over time, you will learn to quickly assess the prospects of the situation without lengthy calculations.
P2P exchanges
More than 300 decentralized (DEX) and centralized (CEX) cryptocurrency exchanges provide spot and futures trading services. Their full list is available through any cryptocurrency screener. However, the biggest price differences are often seen when cryptocurrencies are exchanged between participants directly, without intermediaries.
How to look for bundles for cryptocurrency arbitrage
Using scanners, we can easily find forks on different currency pairs. For example, Spreadscan shows that the spread for the ABBC/BTC pair is 0.621%. We buy ABBC Coin on the Kucoin exchange (buy price highlighted in green) and sell on Bittrex (sell color – lilac).
For independent searching, we focus on screeners and cross-courses.
For example, Binance, in addition to showing prices for certain currency pairs, displays the cross rate of the asset in the selected currency of the account. We find currency pairs with frequent forks through a scanner or a screener and open them in different browser tabs for quick trading and observation.
For example, the cross rate of bitcoin in dollars, if you exchange USD for EUR and then buy BTC, is $22,394.76. At the same time, the current price of BTC in USDT (a stablecoin that usually trades at a 1-to-1 exchange rate to the dollar) is 22324.67. The difference in price: 0.31%.
Trading 1 BTC, you can make a profit of $70 per transaction. Although this is a small amount considering the turnover, it is an intra-exchange trade without commissions, and such an operation can be repeated as long as the price difference remains and the necessary volumes are available.
Customization of the arbitrage scheme taking into account legal requirements
Let’s understand the key question: is it legal to engage in arbitrage and trade cryptocurrencies? Can it be compared to trading stocks and other financial assets? What’s important to know before getting started?”
You need to remember that taxes need to be paid on any income. Depending on your trading strategy, you can pay taxes as an individual, become self-employed, or register a sole proprietorship.
It should be kept in mind that arbitrage in self-employed status is not suitable. According to the law, it is considered a resale of assets, which is excluded from the list of permissible activities for the self-employed (although the sale of mined cryptocurrency is allowed). For p2p trading, it is better to register a sole proprietorship.
If you want to try trading cryptocurrency with small amounts to assess your capabilities, you can do without the status of a private entrepreneur. But this only works if you trade small amounts and do it for a short period of time. In the future, arbitrage without official status can lead to problems:
- Tax fines and penalties that can exceed your income and leave you in debt;
- Criminal liability;
- Bank accounts can be blocked in accordance with the Federal Law-115 on anti-money laundering. Your funds may be frozen not only in your bank, but also in other financial institutions. To avoid this, always provide real data on exchanges, pass verification, even if it is not mandatory. Screenshots from the personal account of the exchange can serve as proof of the origin of funds.
How much you can earn by using p2p bundles
In the area of earning money on arbitrage there are no clear limits. Your income will depend on the following elements:
- The difference in prices (spread);
- Your capital;
- Trading volumes on selected bundles;
- Trading volumes on selected bundles;
There are intra- and inter-exchange price differences of 0.2 to 0.5% that are available almost all the time. Sometimes you can find bundles where you can earn up to 5% in one exchange cycle. If your capital is UAH 10,000, 0.2% will bring you UAH 20 and 5% will bring you UAH 500. Intra-exchange trading allows you to earn such amounts in a minute. On international bundles the whole process can take up to an hour.
You would think that you can earn millions in arbitrage, but here the third factor comes into play – volumes. The amount of cryptocurrency available at a favorable price is limited: each bid has its own limit, and other arbitrageurs compete for profitable bundles. Bids with the best prices are quickly bought up, after which the price correction takes place.
Nevertheless, there is enough volume on major exchanges to exchange the equivalent of up to UAH 400,000 and more. However, before you open an order, you should check whether you can sell the purchased cryptocurrency at a profit.
Before you open an order, you should check whether you can sell the purchased cryptocurrency at a profit.
Selecting an exchange and picking cryptocurrencies
Selecting the right cryptocurrency exchange is an important step in the crypto arbitrage readiness process. The success of your transaction will depend on how quickly you can complete your cryptocurrency exchange, and this directly affects your potential income. If the process of withdrawing funds from a crypto exchange takes a long time, it can cause significant changes in the cryptocurrency exchange rate, which in turn can lead to losses or even negative financial consequences.
The process of withdrawing funds from a crypto exchange can take a long time, which can cause significant changes in the cryptocurrency exchange rate, which in turn can lead to losses or even negative financial consequences.
There is a list of a few of the largest and most reliable crypto exchanges with high liquidity that are recommended to consider when choosing to conduct a crypto arbitrage, according to CoinMarketCap’s ranking:
- Binance;
- Coinbase Exchange;
- Kraken;
- KuCoin;
- ByBit;
- OKX;
- Bitstamp;
- Gate.io;
- Bitfinex;
- Gemini;
Note that for crypto arbitrage in Ukraine you can use both local and international crypto exchanges, depending on your own preferences and needs.
Instrument for crypto arbitrage in Ukraine, you can use both local and international crypto exchanges, depending on your own preferences and needs.
Tools (software) for crypto arbitrage
To perform crypto arbitrage more efficiently, traders often use a variety of support programs that help automate the monitoring and trading process. Here are a few of such tools:
- Scanners: Cryptocurrency arbitrage scanners monitor rates on different exchanges and identify pairs where prices differ dramatically. Some scanners also provide the ability to trade and withdraw funds via API, making the process easier and faster for traders. They are especially useful during inter-exchange arbitrage of cryptocurrencies.
- Trading Bots for Crypto Arbitrage: Arbitrage bots not only detect rate differences between different exchanges, but can also execute trades automatically, without trader intervention. They react much faster than humans and can work around the clock, which increases the potential revenue. However, setting up such a bot for inter-exchange cryptocurrency arbitrage requires some skill, and it can be difficult for beginners to properly configure parameters for automated operation.
- Course Comparison Tools: These are simple tools that allow you to track cryptocurrency rates and find optimal pairs for arbitrage. They are especially useful for beginner traders as they save time needed to make trades by being able to instantly identify profitable opportunities.