What Is Crypto Arbitrage & How Does It Work?

Last Updated on January 18, 2023 by

Crypto arbitrage is a trading technique that involves buying an asset at a low price on one exchange and selling the same asset on another exchange where the price is higher.

The main idea is to buy when the price is low and sell when it’s high, but with crypto arbitrage, there are more opportunities because crypto prices fluctuate so rapidly. Most crypto traders use bots that scan multiple exchanges for these opportunities. For a list of the best crypto bots to use in Australia, read this article.

For example if 1 BTC costs $30,000AUD on Binance but is also trading at $30,100 on Swyftx. This discrepancy in prices means there is a $100 opportunity for arbitrage. Do be aware that there are fees involved that will eat away at some of your profits but you can still be in profit when doing so.

How Can You Make Money With Crypto Arbitrage?

One option for people looking to profit through arbitrage involves trading cryptocurrencies. As their values change, so too can the exchange rates, creating a perfect opportunity to make a profit.

Sounds easy enough but this can be tricky and does take some skill and good timing to master.

If you want to earn a profit from crypto arbitrage, then you need to be persistent and work fast with any profitable opportunities that come your way.

This is no get rich push button system, it does take a lot of practice but there are people making a lot of money doing arbitrage. It can also require a lot of work, luck and good timing.

Crypto arbitrage almost sounds illegal but it is actually legal. You will actually find people using arbitrage tecniques in many different industries, especially when it comes to financial assets.

Arbitrage plays a role in how markets are efficient by setting clear prices for market participants and it creates competition which is a good thing.

So, yes crypto arbitrage is legal, but there are some caveats that you need to be aware of.

The first caveat is that crypto arbitrage has a high risk factor. When you start trading, it’s important to set your stop-losses so that you can limit your losses if the price goes against you.

The second caveat is that crypto arbitrage requires more time and effort than traditional trading because you need to difference in crypto prices of multiple exchanges at once.

It’s important to note that crypto arbitrageurs are not breaking any laws because they’re not actually doing anything illegal – they’re just buying and selling cryptocurrencies on different exchanges in order to make a profit.

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What you Need To Know Before You Start Crypto Arbitrage…

Cryptocurrencies are complicated and can be very speculative, but they also offer benefits that many people like. For example, cryptocurrencies and blockchain technology will help combat fraud in the future.

There is no guarantee any market will change direction for you – which makes this strategy potentially very costly. These types of investments often cause the investor to become impatient and sell at the wrong time.

The more complicated your strategy is, the harder it will be to execute. Before you even try to do any arbitrage trading, make sure you’re aware of the risks involved in this high-risk business.

If you’ve done your research and are confident that this is the path for you, keep these tips in mind before getting started:

  • Check listings often: Make sure you keep tabs on the crypto forums and news sites, as they should announce new listings when a new coin will be added to an exchange. You can make good money if a coin is newly and only listed on one exchange. Once it becomes listed on other exchanges there may be potential for profits.
  • Keep an eye on crypto markets: By staying up to date with the markets and news you can scout recent price drops and increases. The chances of the prices decreasing are higher during periods of market volatility, it’s recommended to avoid buying when this happens.
  • You should always only trade on trusted exchanges: Before dealing with any cryptocurrency exchange, do your research to find out which are reputable sites. You can check out our top rated crypto exchanges in Australia here. Our most recommended and highest-rated exchange is Swyftx.
  • Have a plan: Make sure you have a good solid plan of attack. If you try and wing it there will be a lot more chances of losing money. Stick to your plan and if things need changing you can always test it out as you go.
  • Learn as you go: Always learn from others and from your mistakes. Ask questions in Facebook crypto groups, forums and do your research online. You’ll become a master of crypto arbitrage in no time!

These are just a few tips but they are sure to help you get started.

Risks & Benefits Of Crypto Arbitrage

There are a lot of risks and benefits when doing crypto arbitrage. Here are a few things to take into consideration if you’re thinking about giving it a good go…

Some benefits include:

  • No shortage of exchanges: It really does seem like there’s a new exchange popping up every week. That means more competitive pricing and a fight for exchanges to come up with new technology and perks such as lower trading fees for their customers. We strongly recommend doing your research and only working with the top reputable exchanges.
  • Volatile markets: Crypto can be very unpredictable and volatile. This can be a good thing and a bad thing but because of the volatility there is potential for a lot of profit if you play your cards right.
  • Profitability: Crypto is still only new and with new coins and technology coming out all the time you can make good profits if you jump in early or keep up to date with the latest crypto news and trends.

Some of the risks involved with crypto arbitrage:

  • KYC regulations: KYC regulations can severely impede your ability to use many exchanges. One thing many exchanges have in common is, that you may need to hold a bank account within the same country where the exchange is based making it hard to become verified.
  • Exchange fees: One thing you need to keep in mind are exchange fees on trades. Most will waive the deposit and/or withdrawal fees but some do charge fees on deposits and withdrawals which takes from your profits. Always read their terms and conditions or at least do your research before trading with them.
  • Deposit and withdrawal limits: Most exchanges do have limits on how much you can withdraw and deposit and some have level systems that give you higher limits after completing certain tasks such as verification of identity. Withdrawal limits can affect your arbitrage deals because you may need to hold onto coins for long periods of time and prices do change very fast in crypto.

These are just some of the risks and benefits of crypto arbitrage to think about. Always remember the game is changing as fast as it is growing so always try and keep up with rules and regulations.

Final Thoughts…

Crypto arbitrage is legal and there are a lot of people doing it. It’s definitely not as easy as it’s made out to be but once you learn the basics and become a better trader you can make good money doing it.

Always do your research, make sure to use only trusted exchanges and have a solid plan so you’re not going in blind.

Are you going to try crypto arbitrage? If so, good luck and stay safe!

Related Youtube video on arbitrage trading:

Disclaimer: This article is intended to be used and must be used for informational purposes only. It's important to understand that digital assets are risky, you should always do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice.