Arbitrage is the process profiting from the difference in pricing between coin
pairs listed on different exchanges. This isn’t an easy process since it
involves doing buys and sells in split seconds on 2 different platforms. However
you can also do arbitraging between coin pairs on the same platform.
You can do this manually but you can also use a trading bot like
Haasbot or
Cryptohopper (only the $99 version) to
automate this process.
Why is this interesting? Well instead of focussing on a market going up or down
you focus on price difference between pairs on 1 exchange or between pairs
listed on different exchanges. This makes it possible to earn in difficult
market situation and relatively risk free as usually the difference moves with
the market.
Example
I bought (manually without a bot) KCS for USDT when I noticed
Kucoin was selling KCS for **$6.4 in
USDT ** and when I checked the KCS/BTC pair I noticed it was being sold
for $7 based on the current BTC price a 60 cents difference. So I bought
a 1000 KCS at $6.4 with USDT(minus transaction costs which I’ll
omit here for simplicity), next I sold my 1000 KCS for BTC at $7 (in
Bitcoin equivalent). And to finish it off I sold my Bitcoin back to USDT
and made an easy
($7-$6.4)1000 =*600 dollars **profit minus transaction costs.
Now on most exchanges these differences are relatively small because of
arbitrage bots trading, the differences become smaller but on
Kucoin which is a relatively new exchange
you don’t have many bots targeting it yet and often low volume on some pairs
which causes the price to lag. The low volume can be a problem to get the
transactions executed fast enough but if you look at the order sizes you can
make it so that your order matches a sell or buy order in size.
Usually arbitrage opportunities don’t have such large differences on the pairs
so for it to be effective you need a enough of funds to make it worthwhile. That
said if you get stuck with KCS coins worry not since it has octupled since
Xmas.
The nice thing about Kucoin is they show the value in USD for each pair so you
don’t have to do a lot of calculations to figure out if it’s worthwhile.
Note this price is the last trade this doesn’t mean it’s the current bid or sell
but it does give you an idea about the price differences.
The above references an opinion and is for information purposes only. It is not
intended to be investment advice. Seek a duly licensed professional for
investment advice.