What is Arbitrage, how is it done?

Aside from the price of the crypto values ​​or the total market value, one of the biggest and most valuable tools actually brought by crypto-values ​​to investors is probably the possibility of arbitrage between stock exchanges.

The WikiPedia arbitrage is defined as "buying and selling money, precious metals, bonds and stocks in order to benefit from price differences".

On conventional stock exchanges, ie stocks, commodities and futures, you can not buy a value in the stock market that you traded on the stock market and sell it on the stock market. For example, even the shares of the same company traded on the NASDAQ and Hong Kong stock exchanges can not be bought from a stock exchange and sold on the other stock exchange. Because the conventional stock market is actually a separate eco system in each of them. This stock exchange entry and exit is usually done in the currency of the countries where the stock exchange is located and is subject to regulation. For example, you can log in with TL for BIST and be subject to CMB regulations, USD for NASDAQ, etc ...

However, entry and exit to crypto-value exchanges are not only in local currencies. In general, all crypto-values ​​traded on a stock exchange can be entered and exited. For example, the Binance name stock market, which recently announced its name frequently, offers the opportunity to trade for over 200 crypto-values.

Bits like Bitfinex, Bitstamp, Liqui, Cex.io, though not as much as Binance, allow arbitrage basically because they allow transactions between multiple crypto-values. The arbitrage in crypto-values ​​can be summarized as a crypto-value obtained from the X stock exchange, the process of benefiting from the price difference by selling in the Y stock exchange and providing the profit.

By way of example, Bitstamp BTC / USD is $ 14,900, while Cex.io is $ 15,772. With a rough account, an investor who has been able to send $ 1000 to Bitstamp and get Bitcoin can transfer to Cex.io and sell for $ 1.058. In this case it can also generate a USD gain of about 5.8%. (03.01.2018 -22.18)

Another example is the BTC / ETH. As of the moment Binance also has 0.062 for ETH / BTC and 0.061 for Cex.io. If the investor has the chance to buy Bitcoin and Ethereum from Cex.io and sell it at Binance, he might get a gain of 1.6%. These figures may seem to be able to cover the commission rates on the stock exchange, but there is often an arbitrage probability of between 0.1 and 2% among stock exchanges. (03.01.2018 - 22.20)

Markets do not always give high margins like 5% as Bitstamp vs Cex.io. We can see the arbitrage opportunities over 4-5% and on days when the market movement is usually up or down. However, margins in the range of 0.1% to 2% are very likely to occur, especially in the BTC / Altcoin parities. This requires a strict follow-up.

An average investor can make an immediate 0.5-2% gain by taking advantage of these opportunities. It can provide a high yield in the middle-long boat. The important thing here is the necessity of a strict follow-up. For this, some initiatives help investors. For example, sites such as Bitcoin-analytics offer arbitrage opportunities among many stock exchanges to investors. There is also a nice excel example you can use in arbitrage calculations at 99Bitcoins site. With this excel you can write up to the stock market commission rates and calculate the net profit probability in case you catch the parity difference.

As a result, by arbitraging, investors may have an arbitrage opportunity of between 0.1% and 2% at least 2-3 times per month, but not every day. This requires a strict follow up, a good plan and strategy. These figures can be high, especially in high-volume transactions. However, an important issue can be that the arbitrage process can be done with very high numbers. If the arbitrage is thought to be aimed at a figure of 1-2%, the quantities that could affect the price in both directions during sudden sales and purchases may not provide the desired performance. For this reason, a fund size should be calculated according to the crypto-value to be traded and the volumes of the stock exchanges to be traded.

On the other hand, the conventional banking system offers a monthly interest rate of 1-2% for USD. In the light of this, it can be quite efficient to get a 1% arbitrage opportunity even once a week in USD. Obviously, what is the price of crypto-values, where market value goes unknown. It would probably be much better if the advantages offered by investors, such as arbitrage, could be discussed instead of these questions.