Analysis of the price difference between these two or more cryptocurrencies would help the investors to find profitable opportunities to facilitate several transactions among these cryptocurrencies.
Let’s understand this with the help of an example, let’s take a handbag which has a price of 60 dollars at one shop and you are a trader who wants to buy that handbag at 60 dollars and would be selling it to another bag shop where the same handbag is accepted at rupees 65 dollars.
In this way, you can earn a profit of 5 dollars on a handbag by only spotting a common price difference between these two shops.
What is arbitrage trading in crypto?
Therefore, in common terms, you can say that arbitrage trading is a way to do crypto trading through the cryptocurrencies by spotting the common price difference between the two cryptocurrencies.
It helps in eliminating the confusion of selecting the appropriate cryptocurrency, it helps in selling the crypto asset at higher and cheaper places at the same time. It is a way of conducting trading through different and similar exchange platforms. To invest in bitcoins you can visit the website bitcoin circuit
How does crypto arbitrage trading work?
Crypto arbitrage trading works on the principle of no fixed trading currency, which means the cryptocurrency is operated and functions differently based upon different crypto assets, it is like an online barter system where there are lots of assets but no common method of payment.
So, taking advantage of such discrepancies becomes an innovative way of attracting the high-volume trade and making a profit, but for this large number of simultaneous trading must be executed.
What are its trading strategies?
Arbitrage trading can be executed in two common ways, first one is based on trading with the same exchange platforms with the price difference and trading with different exchange platforms with the price difference.
This means the trading directly depends upon the exchange platforms and hence can be classified based on the type of exchange platform used:
Spatial arbitrage trading
It is a common method of arbitrage trading where one can buy a crypto asset at a lower rate from another platform and then sell it at the higher rate on another platform, this method helps to reduce the period and the cost charges that are applied during the time of transfer of asset.
It again involves two methods under Spatial arbitrage trading without transfer:
Method 1: The price converging
Under this method, we would buy the same crypto coin under the short coin and long coin category, now we would wait for the time when the monetary value of one cryptocurrency may converge into another cryptocurrency.
Method 2: without price converging
Let’s take a numeric example, here, let say, we would buy a cryptocurrency from an exchange platform called A at 10 dollars and then we wait for the price difference to elevate in another exchange platform, now at suppose the price increases to 15 dollars in platform B.
Then we sell that cryptocurrency from platform A to platform B without converging and made a profit of up to 5 dollars.
The Bottom Line
Crypto arbitrage trading provides a secure edge to all the investors and market makers who want to trade securely and want to make high returns at lower risk rates. It also provides a way of learning for amateur or new investors to learn the market strategies of investment through low-risk factors and easy operations.