Arbitrage trading is among the most popular options for earning a profit with your cryptocurrency. You can make the process easier with crypto arbitrage bots, but there are some important things to know before you do so.
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Crypto Arbitrage Trading in Short
Before exploring the best arbitrage crypto bots and platforms, you need to make sure you fully understand crypto arbitrage trading.
What Is Arbitrage Trading?
Arbitrage trading with cryptocurrency follows the pattern of arbitrage trading with other instruments. Regardless of the asset, arbitrage trading earns a profit by taking advantage of price differences across exchanges. This can be profitable on a small scale for traditional financial assets, but it is even more appealing for cryptocurrency.
Cryptocurrency has two main advantages for arbitrage trading (compared to traditional assets). First, it is highly volatile, so there tend to be more price variations between exchanges. Additionally, it is traded 24/7 on hundreds of exchanges, giving you more opportunities to find and exploit price differences.
Why Are Crypto Exchange Prices Different?
On a centralized exchange, the price listed for a cryptocurrency will be the most recent bid-ask order matched, i.e., the most recent price it sold for. As investor demand varies across exchanges, the prices vary as well.
What’s the Situation With Decentralized Exchanges (DEXes)?
While the above pricing strategy is the case for centralized exchanges, decentralized exchanges are slightly different. They use the automated market maker system. Every decentralized exchange has a liquidity pool for every crypto trading pair. This prevents the need to find a counterparty when you want to buy or sell crypto; you can execute the trade.
Most decentralized exchanges maintain the prices by using a formula designed to balance the ratio of assets within the liquidity pool. In practicality, when someone buys crypto A using crypto B, they would add crypto B to the liquidity pool. The protocol lowers the price of crypto B while increasing the price of crypto A to bring it back in balance.
The prices can have significant fluctuations if someone makes a sizable trade. This can even lead to major differences between the crypto’s price on the exchange and its market value. That is what arbitrage traders take advantage of.
Types of Crypto Arbitrage Strategies
There are several common types of crypto arbitrage strategies that you can choose to use. The most common include:
- Cross-exchange arbitrage – This is the most basic type of arbitrage. It involves buying crypto on an exchange and then selling the same crypto on another.
- Spatial arbitrage – This is a specific type of cross-exchange arbitrage where the two exchanges are in different regions. It takes advantage of regional price differences.
- Triangular arbitrage – This strategy lets you take advantage of price differences among one or two cryptos. It involves moving funds between at least three cryptos on one exchange. The fact that you complete all transactions on a single exchange makes transactions quicker and means you don’t have to withdraw or deposit as much.
- Decentralized arbitrage with smart contracts – This method involves using automated smart contracts to find crypto trading pair prices. It then takes advantage of significant differences between prices on decentralized and centralized exchanges.
- Statistical arbitrage – This method involves trading bots and mathematical models. You complete high-frequency trades to maximize the profit.
How to Build a Crypto Arbitrage Bot
Building a crypto arbitrage bot will require some coding knowledge. You will have to be familiar with at least one programming language. Moreover, you have to create a strategy, choose exchanges, code, and test your bet. You can find guidance on sites like GitHub. The complexity of creating a bot is why so many people turn to bot platforms like Pionex.
Is Crypto Arbitrage Still Possible?
Yes! You can engage in crypto arbitrage trading on various platforms.
Crypto arbitrage trading has a lower risk than other trading strategies because you don’t need to complete predictive analysis. Additionally, there is lower exposure to trading risk because each trade only lasts minutes at the most.
Even so, the following risks are worth mentioning:
- Fees – Most exchanges have a transaction, withdrawal, and deposit fees. These can quickly add up. You can reduce this risk by choosing your funds carefully or depositing funds on several exchanges and only trading on those.
- Timing – Because cryptocurrency is so volatile, timing is crucial for arbitrage trading. If you don’t act immediately, the opportunity may vanish. Many people mitigate this with bots.
- Security – You have to choose your exchanges carefully, as there is a risk of hackers targeting exchanges. You also have to be wary of exit scams. Minimize the risk by looking for established options like Binance.
Best Crypto Arbitrage Bots in 2022
You have your choice of crypto arbitrage bots, but the following are the best ones in 2022:
- Haru Invest
Both Cryptohopper and Coinrule charge you every month regardless of whether you make a profit. In contrast, Haru Invest offers two fee-free crypto arbitrage options, Haru Earn and Haru Earn Plus. Even with the higher-performance Haru Earn Explore, you only pay a fee if you make a profit of at least 15% APR. Even then, it is highly competitive.
Haru Invest also outperforms the other options. The Haru Earn Explore account lets you target earn rates of up to 35% APR.
How Bots Work
With crypto arbitrage bots, you program them once and then let them run. They execute the trades automatically for you. This is efficient but hard to adjust.
Why Haru Is Different Than Bots
At Haru Invest, our experts invest your crypto for you while minimizing the risks. Arbitrage trading is just one of the many strategies we use, but it is controlled by experts who constantly check our algorithms. This lets us react to changes in a way that bots cannot. This arbitrage trading at Haru Invest specifically leverages the gap between BTC and ETH on various crypto exchanges.
We also work with other strategies, such as a market-neutral strategy. This is based on the price stability mechanism at futures exchanges. We also use spread trading that takes advantage of the BTC/ETH futures contract volatility.
How to Maximize Arbitrage Trading Profits With Haru Invest
If you want to maximize your profits, opt for a Haru Earn Explore account, as these have higher target rates than the Haru Earn and Haru Earn Plus crypto savings accounts.
Is Arbitrage Trading Profitable?
There is never any guarantee that a trading strategy will be profitable, but arbitrage trading has a higher chance of being profitable than other methods. This comes from its low risk. Additionally, Haru Invest combines it with other strategies to maximize profitability.
Start arbitrage trading with Haru Invest.