🤑 Crypto Arbitrage: A Beginner's Guide to Making Money Trading Cryptocurrencies
Are you looking for a way to make some extra cash? Have you considered crypto arbitrage? This trading strategy involves buying a cryptocurrency on one exchange and then selling it on another exchange for a higher price. If done correctly, you can easily make some really good money with it. In this article, we'll tell you everything you need to know about crypto arbitrage, how you can do it for yourself, and some extra tips and hints.
What is Crypto Arbitrage?
At a high level, crypto arbitrage is just buying a coin for less and selling it for more on another exchange. It's basically like trading, but the thing with trading is that you don't actually know how much the price is going to be like in the next five minutes. With arbitrage, you can actually see the prices in real-time on another exchange, and it's like a guaranteed profit. Well, kind of. There are some other things, but we'll talk about that later.
Why Do Coins Have Different Prices on Different Exchanges?
The biggest reason for this is what we call market inefficiency, which is basically an area in crypto's price because technically a crypto's price should be the same everywhere, but it's not. Instead, their prices are determined by how much money people are willing to buy them and sell them for. For example, most exchanges value a coin based on the most recent price at which it was bought and sold, which means if $10 was the most recent price that a certain crypto exchange sold Bitcoin for, well then the exchange is going to price the Bitcoin at those $10.
How to Get Started with Crypto Arbitrage
The first step for you to do is to create yourself an account on all of these major exchanges. You know, Binance, Coinbase, Kraken.com, and maybe even Coin. But there are tons of other crypto exchanges as you can see over here. One thing to note when you create yourself an account on all of these major exchanges, they will give you something that is called KYC. You have to complete that. Now, this is basically just confirming your identity. It's great to have these, but you have to understand that a lot of these opportunities where you can actually make money is from these smaller exchanges, which usually they have no KYC check, so you can create these very easily, such as Bitfinex, Bitstamp, and a lot of these other ones.
How to Research for Crypto Arbitrage Opportunities
Now that you have everything set up, it is time for us to do the research. That is the most important part of this. You have to invest a lot of time into this part. Luckily, you have over 2 million opportunities. Obviously, that's a bit overkill, but you're just going to go through and see which ones have some great opportunities. For example, let's say that we go with Uniswap. I go into it, and then I check the markets section. For example, I can just click on the price and the highest price. Don't mind these with asterisks. Ignore these. Now, what do I want to do? Check out this one. It is $844. If I head over only to the fourth page, you can see that there is here for $6.6. So it's a pretty good opportunity.
What is also important is that you check out the volume. Volume is really important, and if you click here on show full width, you will also see the liquidity score. Now, liquidity score and volume, this in 24 hours, you have to check those. You want the volume to be high and liquidity score to be high as well because while your volume is pretty much, it shows you how much money people are trading within that given exchange. So if the volume is lower, it's going to be hard for you simply because there's not a lot of money moving. So if the volume is higher, it is easier for you to sell.
Tips for Successful Crypto Arbitrage Trading
When doing arbitrage trading, it is recommended to stay within contracts like SMART Train Avalanche or Polygon. The reason why we say this is because they have very low fees. While these other ones, for example, ERC20, there's a lot of tokens, a lot of cryptos on it, but their fees are very, very high, and those fees eat into your profit. If you can stay within these smaller ones, that's great.
Also, research-wise, we strongly suggest that you go and look at crypto news. Always do the research. There are a lot of articles out there, a lot of websites that will serve you with the updated news on all of these cryptos, even new ones. There's a whole bunch of articles coming out about specific coins, and a lot of the coins move based on those articles. You can use that. Also, there are a lot of bots out there that you can use that can track anytime there's a big difference, so you can set it up, for example, if there's a 10% difference, the bot will alert you, so you can use that as well. Or you can just use what we use, CoinMarketCap. It's been our friend for a lot of time, and it's a really, really good thing. All we do is we just search through these lower coins, for example, Monero, and we just go over to the markets here, go show full width, and then we just go and sort these by price, by volume, by liquidity score until we can find something that works.
Pros and Cons of Crypto Arbitrage
Pros:
- Can be a great way to make some extra cash
- Safer than traditional trading because you know the price you can sell for
- Can be done with smaller cap coins for bigger profits
Cons:
- Requires a lot of research and time investment
- Smaller exchanges may not have the same level of security as larger ones
- Fees can eat into your profits
Highlights
- Crypto arbitrage involves buying a cryptocurrency on one exchange and then selling it on another exchange for a higher price.
- Market inefficiency is the biggest reason why coins have different prices on different exchanges.
- To get started with crypto arbitrage, create an account on major exchanges and research for opportunities.
- Tips for successful crypto arbitrage trading include staying within contracts with low fees and keeping up with crypto news.
- Pros of crypto arbitrage include the potential for extra cash and safer trading, while cons include the need for research and fees.
FAQ
Q: Is crypto arbitrage legal?
A: Yes, crypto arbitrage is legal.
Q: How much money can I make with crypto arbitrage?
A: The amount of money you can make with crypto arbitrage depends on the opportunities available and the amount of money you invest.
Q: Is crypto arbitrage safe?
A: Crypto arbitrage can be safer than traditional trading because you know the price you can sell for, but it still requires research and investment.
Q: Do I need to have a lot of experience to do crypto arbitrage?
A: While experience can be helpful, anyone can do crypto arbitrage with enough research and practice.
Resources:
- Binance: https://www.binance.com/
- Coinbase: https://www.coinbase.com/
- Kraken: https://www.kraken.com/
- CoinMarketCap: https://coinmarketcap.com/
- Bitfinex: https://www.bitfinex.com/
- Bitstamp: https://www.bitstamp.net/
- Uniswap: https://app.uniswap.org/
- SMART Train Avalanche: https://www.avalabs.org/
- Polygon: https://polygon.technology/
- CoinNut: https://www.coinnut.com/
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