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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What is Crypto Arbitrage?
At its most basic level, cryptocurrency arbitrage is making a profit from the fact that not all exchanges will list cryptocurrencies for the same price. You can do arbitrage crypto trading between more than one exchange. You could also use just one exchange and do triangular arbitrage.
To add a bit more detail, crypto arbitrage involves buying a specific cryptocurrency on one exchange and then immediately selling it on another exchange where it lists for a higher price. This is one method of buying low and selling high to make a profit.
With crypto arbitrage, speed is a major priority.
Crypto Arbitrage Opportunities
There are several different methods of arbitrage crypto trading, depending on your overall strategy and actions:
- DeFi (Decentralized Finance) Arbitrage: This is crypto arbitrage using DeFi, which is a non-custodial financial protocol that works as an exchange, stablecoin, and lending protocol. They are code-heavy. You can follow one of several strategies with this type of arbitrage. One option is to look at the differences in yields from lending with DeFi protocols. Or it can follow the same method as arbitrage between crypto exchanges. You can also use trading bots to get ahead of other traders with higher gas fees to take advantage of the price gap while it is still the widest.
- Arbitrage Between Crypto Exchanges (Spatial Arbitrage): This is the above situation, where you buy crypto on one exchange, move it to another, and sell it there. It has a few issues, including the transfer can sometimes take longer than spreads last, and the transfer fees can detract from your profits. Some traders hold crypto on multiple exchanges to reduce such issues.
- Flash Loan Arbitrage: This uses flash loans, which are instant crypto loans that let traders borrow crypto in large quantities without collateral. Some people will use this by taking advantage of variations in interest rates from providers of flash loans.
- Statistical Arbitrage: With this method, you use quantitative data models and a crypto arbitrage bot to trade your cryptocurrency. The bot lets you trade hundreds of cryptos simultaneously. The bot uses a mathematical model to determine the chances of profits and then makes the appropriate trades based on those calculations.
- Cross-border Arbitrage: This refers to any type of crypto arbitrage that takes place on exchanges that are in two different countries.
- Triangular Arbitrage: This is arbitrage on just one exchange that involves three cryptos. You don’t have to worry about transfer fees or the time spent transferring the crypto, as it all occurs on one exchange. This is a bit more complicated as three cryptocurrencies are involved. It essentially takes advantage of a single cryptocurrency being undervalued on the given exchange. So, assume cryptos A, B, and C are involved. A trader would sell crypto A for crypto B, then sell crypto B for crypto C, and finally buy crypto A with crypto C. Theoretically, they should end up with more of crypto A than in the beginning.
- 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.
Top Crypto Arbitrage Bots
Arbitrage trading doesn’t require a bot that connects to your exchange account, it’s not neccessary. The biggest problem with arbitrage trading bots is that they are not constantly updated according to market conditions. Solutions like Haru Invest resolve this problem.
Typically, when you use a trading bot, it follows a mathematical algorithm and executes trades based on that algorithm. However, it doesn’t always work. As the cryptocurrency industry is very dynamic, people can hear shocking news at any time, such as the FTX collapse, or the Celsius crisis, and in this time period, trades can’t be explained mathematically.
The algorithms need to be upgraded according to new trends in these kinds of situations, and arbitrage trading bots can’t keep up. The experts behind Haru Invest continuously monitor the market and work on the algorithm to offer the best rates with minimal risk.
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1 – Haru Invest
Haru Invest is a centralized crypto asset management company not a crypto trading bot.
Despite most CeFi Earning platforms operate based on borrowing-lending, Haru Invest utilizes users’ crypto assets in algorithmic trading.
Haru Invest adopts the secure wallet service from BitGo, a world’s leading institutional digital asset financial service provider, to handle the direct transactions with users.
All the crypto assets are managed directly by the Haru Invest trading strategy teams and trusted partners under periodic thorough due diligence and deployed for algorithmic trading in the top crypto exchange platforms with the highest daily trade volumes.
Haru Invest targets on increasing the absolute number of cryptocurrencies not the fiat value.
Market inefficiency driven algorithmic strategies are employed for risk-adverse hedged tradings, among which there are three major strategies as following:
- Market Neutral Strategy based on Crypto Derivate exchange
- Spread Trading based on Crypto Derivate exchange
- Arbitrage Trading based on Crypto Derivate exchange
- Option Trading based on Crypto Derivate exchange
Besides the above strategies, Haru Invest trading strategy teams have always been researching, developing and evolving different algorithmic strategies to catch up with the rapid changing crypto market.
2 – Bitsgap
Bitsgap is a trading bot that lets people easily trade across various cryptocurrency exchanges. According to the platform, it can find the best rates and manage your portfolio efficiently. These capabilities make Bitsgap a popular option for trading in general.
Additionally, the fact that you can use it with multiple exchanges makes it a widely used platform for arbitrage trading.
The following are just some of the features you can expect from Bitsgap:
- Compare rates across exchanges
- Manage investments across exchanges
- Use basic or advanced orders
- Switch between exchanges
- Use a demo account to test strategies
- Use trading signals
- Build futures trading bots
- Conduct arbitrage trading
How Bitsgap Works
Setting up a Bitsgap account is a straightforward process. You can create an account in a matter of minutes. Once you have an account, you just link your account with at least one supported exchange. The linking process is done with an API key.
Once everything is set up, you can start a bot or place an order. Bitsgap lets you switch between exchanges.
Read: Bitsgap Review
3 – Cryptohopper
Cryptohopper is a trading bot. It is powered by AI and runs 24/7. The idea is that you can use Cryptohopper to automate your trading. This lets you trade any time of the day, even if you are asleep or on vacation.
Automated trading also has the benefit of helping you avoid emotional trading, which can be incredibly risky and lead to poor decisions.
To use Cryptohopper, you connect it to your account on a cryptocurrency exchange. It can connect to multiple exchanges within a single account and works with the most popular crypto exchanges.
Cryptohopper also offers a marketplace where you can copy other traders with ease. This lets you read Cryptohopper signals reviews to decide which signals to follow and which bots to use.
Read: Cryptohopper Review
How to Do Crypto Arbitrage Manually
Doing crypto arbitrage is as straightforward as it sounds:
- Register on multiple exchanges ahead of time to make transfers easier and save time.
- When you see an opportunity, buy the crypto on the exchange with a low price.
- Transfer the crypto to the exchange with the higher price.
- Sell the crypto on the new exchange for fiat.
- Enjoy your profit.
How to Make a Profit With Crypto Arbitrage
It is theoretically possible to make a profit with crypto arbitrage if you do it manually, but you typically need to use a bot to increase your chances of success. That is the only way you can accurately see listings across exchanges at all times, including when you are asleep.
Which coins can be used for arbitrage trading?
Any coin can be used for arbitrage trading, such as Bitcoin, Ethereum, Litecoin, Ripple (XRP), USDT, and USDC. A coin with high volatility and unique opportunities would be a better choice majority of the time.
What Are the Risks of arbitrage trading?
Crypto arbitrage trading is not without its risks. You will have to keep the following potential risks in mind if you plan on using this strategy:
Gains Are Small Without High Volumes
Because of the nature of crypto arbitrage, you will typically only see very small profits for each arbitrage opportunity. As such, you need to have a higher volume of crypto and available capital to see profits on the scale you likely want.
As mentioned, you have to act fast with crypto arbitrage. Prices can move very quickly, and opportunities can disappear within seconds. The rise of crypto arbitrage bots only adds to this issue, as it increases the competition.
If you own cryptocurrency, you hopefully know that you should not store more than you need to on a crypto exchange, as that is among the riskiest places to store it. However, having all of your crypto on one or more exchanges will increase your chances of success with arbitrage. As such, you need to balance the security risks with the potential rewards.
This refers to when your order is not processed right away, so you end up buying or selling at a different price than intended. It can happen if your order is bigger than the order book’s cheapest offer, resulting in you paying more than expected. That could reduce or even eliminate your profits.
We already touched on transfer fees if you are using cryptocurrency arbitrage between exchanges. This can be an issue, especially because of the tight spreads most crypto arbitrage trading deals with.
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.
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