Hello, brilliant minds! It's a joy for me to participate in Prof @reddileep's Arbitrage Trading lectures this week. It's been a fantastic lecture.

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Question 1

Define Arbitrage Trading in your own words.

In the crypto currency markets, we can benefit in a variety of ways. One of these strategies is arbitrage trading. Traders that engage in arbitrage trading take advantage of the cost differences between the same assets on different marketplaces or exchanges. Investors in stock, forex, and all types of commodities markets might profit from this market activity because it involves the price differential of similar assets in different marketplaces.

The price discrepancy is mainly due to how quickly the markets respond to price fluctuations, which is influenced by trading volume, market pricing across exchanges, the impact of large exchanges on lesser transactions, currency exchange rates, and a variety of other factors.

There are always multiple alternatives that dealers use to spot arbitrage trading opportunities. Although the danger of arbitrage trading is minor, a trader can lose money if not given adequate focus. Arbitrage trading can take many forms, and yet they all revolve around the price differential between similar assets traded on the same or separate platforms.

Buying a coin at $55 on Binance and selling it at $58 on Huobi is an example of arbitrage trading. By just exchanging the token from Binance to Huobi, the dealer has made a 3 dollar profit. The majority of arbitrage traders use technology to track markets and execute arbitrage trades.

Criteria For Executing Arbitrage Trading

• Assets must be bought and sold immediately for a profitable transaction execution.

• The same assets purchased in one market must also be purchased in some other market.

• Delays in trading activity will almost always expose you to risk.
  

Question 2

Make your own research and define the types of Arbitrage (Define at least 3 Arbitrage types)

Types of arbitrage trading

Arbitrage trading comes in a variety of forms. In terms of digital currencies, I'd want to discuss the following four types of arbitrage trading:

Simple Arbitrage

This is a sort of arbitrage where two exchanges are involved. It entails purchasing a coin on one exchange, transferring it to another, and then selling it for a profit. Small transactions are usually where you'll find this possibility. I can recognise the one with the higher price simply by analyzing the price difference of the same item on several exchanges, transfer the asset to that exchange, and sell it for a profit. It should be noted that expenses for transferring funds between two exchanges are higher than fees for trading inside one exchange.

Convergence Arbitrage

This sort of arbitrage entails taking long and short positions regarding the difference in price. We check the prices of the coin on several markets, then take a very long entry position in the marketplace where the price is low and a short entry position on the market where the price is high, so that when the prices converge, we may profit by selling the long and then purchasing back the short. I can purchase ADA long on Binance for $3.0 and sell it short on Houbi for $3.2. When the prices converge, I'll make a 9 percent profit.

Cash and Carry Arbitrage

This sort of arbitrage is comparable to convergence arbitrage and is possible in the futures market. We can go long in the spot market and then short in the futures market, keeping the coins in the spot market until the futures deal expires. The profits will now be the difference.

Triangular Arbitrage

This sort of arbitrage, like convergence arbitrage, can be done in the futures market. We can just go long in the spot market, then short in the futures market, holding the coin in

the spot until the futures contract expires. Profit will subsequently be derived from the difference.

Question 3

Explain the Triangular Arbitrage Strategy in your own words. (You should demonstrate it through your own illustration)

Triangular Arbitrage

Triangular arbitrage, as previously stated, takes advantage of the varying prices of the three separate coin pairs in an exchange. First and foremost, we evaluate the asset ratios to the USD. The formula below can be used to calculate the return on our investment:

(Rate of first pair / rate of third pair) x (Investing amount) = Result

We can proceed with the trade if the fee and slippage are removed from the outcome and there is still a profit.

The triangular arbitrage cycle starts with one coin, which is then swapped for another coin on the same platform. The second coin is then exchanged for a third, and the third coin is then exchanged for the first.

Let's suppose i bought 5 xrp for 5 usdt and then I sell 5 xrp for 0.00010835btc and btc price increases so i sold this amount of btc and i got 5.1 usdt

This is how the triangular arbitrage works.

Question 4.

Make a real purchase of a coin at a slightly lower price in a verified exchange and sell it in another exchange for a higher price. (Explain how you get your profit after performing Arbitrage Strategy, you should provide screenshots of each transaction showing Bid, Ask prices)

Here, we were tasked with making a real purchase of a coin on our verified exchange and selling it at a higher price on another exchange.

I purchased XRP at 30.0 USDt on Binance with the XRP/USDT pair on Binance.
I then accessed my wallet and clicked on withdraw and selected to send the XRP into my mexc account

then I withdraw xrp from binance to mexc exchange

Then i sell my xrp at 1.04 usdt per xrp

And here is the proof

Although i lost few cents just because of transferring the xrp because of transection fees but i managed to sell xrp in some higher price.

Question 5.

Invest for at least 15$ worth of a coin in a verified exchange, and then demonstrate the Triangular Arbitrage Strategy step by step using any other coins such as BTC and ETH. (Explain how you get your profit after performing Cryptocurrency Triangular Arbitrage Strategy, you should provide screenshots of each transaction)

I did triangular arbitrage with the following asset pairs:

Usdtbtc
Adxbtc
Btcusdt

Then I purchased some BTC as you can see

I purchased total 88.85 worth of BTC as u can see

Then I purchased ADX with this BTC as you can see

Then I sold adxbtc pair and here is the screenshot

Then I sold that BTC to usdt and got a little profit by doing triangular arbitrage which u can see

Question 6.

Explain the Advantages and Disadvantages of the Triangular Arbitrage method in your own words.

Advantages of arbitrage trading

1- There are a variety of exchanges where we might look for arbitrage trading possibilities, and new exchanges are popping up all the time.

2- Arbitrage trading entails a lower level of risk.

3- Arbitrage trading has become easier and more automated since the arrival of bots.

4- It is simple and stress-free.

The disadvantages of arbitrage trading

1- The majority of price variations occur on minor exchanges. The majority of these minor exchanges are either fraudulent or vulnerable to hacking. As a result, arbitraging in such exchanges might easily result in asset loss.

2- Network latency, you may have a poor network or slow withdrawal speed. This can cause you to retain the asset for an extended period of time, resulting in a loss rather than a profit on the trade.

3- High inflation in arbitrage trading generally results in slippage during executions.

4- Transaction fees and taxes frequently obstruct profit, and if accurate calculations are not performed, you may find yourself not making the intended profit.

5- Due to insufficient liquidity, trades might be done rapidly at an unfavorable price.

Conclusion

We've learned about arbitrage trading, and professor @reddileep has given us the opportunity to put what we've learned into practice. I now understand why most arbitrage traders prefer to utilize software to automate the process. It requires a lot of attention because one must move from one trade to the next in quest of a profit opportunity. Regards to Professor @reddileep for this thought-provoking talk.

Thank you.

cc

@reddileep

#reddileep-s4week4 #cryptoacademy #arbitrage-trading #crypto-triangular