An Effective Way To Earn From The Cryptoworld: Arbitrage Trading.. Part 2
Hello crypto lovers,
I believe you are all doing great today and are enjoying your activities perfectly in the community.
Just the previous day we discussed about arbitrage trading, and we learnt a lot about arbitrage trading.
Then in the concluding part of our discourse we listed some types of arbitrage trading, and this will be discussed now.
If you haven't read our previous discourse, you can get them HERE.
Please follow along as we examine this interesting topic.
TYPES OF ARBITRAGE TRADING
There are different types of arbitrage trading and some of them are.
- SPATIAL ARBITRAGE TRADING:
Spatial arbitrage trading is a type of arbitrage trading that seeks to take advantage of discrepancies in price of cryptocurrencies over different geographical locations.
This form of trading technique involves the exploitation of of price differences of a stock or commodity between different location or market.
The concept of spatial arbitrage trading came about due to regulatory differences, market dynamic, supply and demand or other factors that can lead to differences in price in different regions.
Traders who are participating in spatial arbitrage trading trading tend to make profits by buying in a lesser priced market and selling off in an higher priced market.
Inorder to participate in spatial arbitrage trading, traders make use of different algorithm to monitor prices in multiple market and identify a good trading opportunity.
Before a trade can be carried out, a trader needs to consider some important factors such as regulatory requirements, currency exchange rates, transaction cost.
It is very important to note that the opportunity found for spatial arbitrage trading is short-lived as price immediately adjust to balances itself.
- STATISTICAL ARBITRAGE TRADING:
Just like spatial arbitrage trading, statistical arbitrage trading is a trading technique that seeks to take advantage of price discrepancies of related commodities, but this time it is based on the principles of quantitative modelling and statistical analysis.
This trading strategy simply involves the Identification of a pair of commodities/cryptocurrency that are expected to have a strong predictable relationship or historical correlation.
This trading pair are most times chosen from the same sector and the traders search for situations whereby the the historical correlation between this pairs has deviated from its typical behavior, thus providing an opportunity for profit.
For a statistical arbitrage trade to be executed, traders ought to make use of statistical techniques and sophisticated mathematical models.
They make analysis of fundamental data, historical data and other important indicators inorder to identify a nice trading opportunity.
The models usually used by traders sometimes include co-integration, mean reversion etc and they help to capture relationship between commodities.
CONCLUSION
There are indeed various ways to earn from arbitrage trading and we have examined 2.
In our next meeting we shall learn more.
Thank you, friend!
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