Hello. Could someone explain to me how arbitrage in cryptocurrency world looks like? Could you show me some examples of exchanges which could possibly work good for arbitrage? Thanks in advance
Arbitrage is nothing else than buy asset on exchange "a" and sell it with profit on exchange "b". For example you spotted a price of ethereum on coinbase for $300 but on binance the price is $350 so you buy eth on coinbase and send it to binance sell it for $350. In this example you make a profit of $50 but you need to act fast because the price can change very fast. Remember do not use the exchanges with low ranking and low volume because you can lose your funds.
Arbitrage is purchase of a good or an asset on a market where its price is relatively lower in order to simultaneously resell that good or asset on another market where its price is relatively higher. Such a transaction is carried out without risk. The essence of arbitrage is to notice the difference in prices of the same product on different markets or on the same market. If this difference is greater than the transaction costs, the investor, buying the product on the cheaper market and selling on the more expensive market, makes a profit.
Arbitrage leads to limitation of the price difference of the same good or asset on different markets to the margin depending on the size of transaction costs, thus increasing the efficiency of markets.
In banking it is a buyout of securities on the markets, where quotations of given assets are beneficial, in order to resell them with profit on other markets. In financial mathematics, arbitrage is the strategy of buying or selling securities, currencies, commodities or financial derivatives with a positive probability of profit without the risk of loss.
Stock exchange arbitrage is a long-established financial solution that makes it possible to earn income thanks to the difference between the prices of a single commodity placed on two different platforms. To put it simply with an example:
(a) exchange x,
b) stock exchange y,
If we buy a commodity on the exchange x for 10 USD, and its value on the exchange y is 12 USD, then arbitrage consists in catching the aforementioned difference in price and making an immediate transaction. The essence of arbitrage is therefore to quickly analyse information from the market, catch the price difference on a given commodity, and then make a transaction.
The profit that arises from arbitrage is an extremely stable solution with virtually zero risk of losing funds. The only problematic issue in playing on the basis of arbitrage is quickly catching the difference in prices of a given commodity and liquidating the cash. The investment is not subject to the risks associated with exchange rate price fluctuations or economic problems of any country. The profit from arbitrage is reduced by the cost of the transfer of funds made, the commission when withdrawing funds from the exchange, as well as the possible reduction in price between products at the time of their purchase. When analysing the whole process, it is worth emphasising that arbitrage is an extremely time-consuming and physically tiring activity.