Blockchain and Cryptocurrency Intermediate - Crypto Arbitrage Trading
When it comes to cryptocurrency, arbitrage trading is very popular and traders make use of it to make quick profit with less risk. Arbitrage Trading is basically trading opportunity that involves a trader capitalizing on price differences between multiple crypto exchanges or multiple cryptocurrency pairs to make quick profit while taking less risk. Arbitrage Trading, a trader can capitalize on price differences between 2 crypto exchanges to make profit. For instance the price of MATIC on Okex and Huobi is different. The price of MATIC is higher on Okex, the trader will quickly buy MATIC tokens on Huobi at a cheaper price, send it to Okex exchange and sell it at a higher price.
Also, a trader can capitalize on price differences between 3 cryptocurrency pairs to make profit. For instance there is a cross rate difference between MATIC/ETH, BNB/ETH and MATIC/BNB. MATIC/ETH and MATIC/BNB are valued against BNB/ETH. The trader can capitalize on this price difference to make quick profit with very minimal risk involved. Let’s say the value of BNB/ETH is lower compared to both MATIC/ETH and MATIC/BNB, the trader can quickly sell MATIC to acquire ETH, sell that ETH to acquire BNB and sell the BNB to acquire back MATIC. If done right, the trader would have more MATIC coins which can be sold for quick profit. Depending on the arbitrage type, the trader makes profit while taking very minimal risk.
Practical demonstration of the Triangular Arbitrage Strategy
Triangular Arbitrage only occurs when there is a cross rate opportunity between 3 cryptocurrency pairs. This is not easy to find due to the highly volatile cryptocurrency market which can make it very difficult to execute. For this demonstration, I will be making use of DOT, ETH and BTC
Sold 1.0092 DOT on the DOT/ETH pair at 0.009531 ETH
Receives 0.009612 ETH
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Sold 0.009612 ETH on the ETH/BTC pair at 0.07152 BTC
Receives 0.0006863 BTC
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After that, it was time to Buy back the DOT on the DOT/BTC
Buy 1.0523 DOT on the DOT/BTC pair at 0.0006522 BTC
Receive 1.0523 DOT
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Profit: 1.0523 – 1.0092 = 0.0431 DOT
Profit of 0.0431 DOT
It's essential to note that triangular arbitrage, which involves three cryptocurrency pairs, can be challenging to find and execute due to the highly volatile nature of the crypto market.For a practical demonstration, you've shared a scenario involving DOT, ETH, and BTC, where you sold DOT on the DOT/ETH pair, then ETH on the ETH/BTC pair, and finally bought back DOT on the DOT/BTC pair, resulting in a profit of 0.0431 DOT.If you're interested in exploring more advanced trading strategies like arbitrage, you might want to consider using AI tools for trading. These tools can help you identify arbitrage opportunities quickly and efficiently. You can find additional information at immediateconnect.net.
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