Blockchain and Cryptocurrency Advanced - Arbitrage Trading in Cryptocurrency and Its Benefits
Arbitrage Trading is basically a type of trading opportunity in which a trader capitalizes on the price differences between two or more exchanges to make profit. In Arbitrage Trading, a trader buys a cryptocurrency asset on an exchange at a particular price and sells the same cryptocurrency asset on another exchange at a higher price to make profit with very minimal risk, or an investor buys a cryptocurrency asset on a particular cryptocurrency pair and sells the same cryptocurrency asset on another cryptocurrency pair to make profit.
This is common in the cryptocurrency space as sometimes the price of a particular cryptocurrency is higher on Okex than the price on Poloniex. when this arises, a trader can quickly buy the cryptocurrency at a cheaper price on poloniex and quickly sell it on Okex at the higher price to make quick profit. Also, Arbitrage Trading is also common on crypto pairs. Sometimes, the price on a particular cryptocurrency pair is much lower than the price on another cryptocurrency pair. A trader would capitalize on these price difference for quick profit while taking minimal risk.
When it comes to arbitrage trading in the crypto space, the two very common types are; exchange arbitrage trading and triangular arbitrage trading.
Exchange arbitrage trading
This type of arbitrage trading is very popular and is also seen in the crypto space. Exchange arbitrage trading is basically a trading that involves buying a particular cryptocurrency on a crypto exchange at a lower price, and selling the same cryptocurrency on another crypto exchange at a higher price. At the moment, there are numerous crypto exchanges which can sometimes have different prices between two or more. In exchange arbitrage trading, a trader spots the price differences between two exchanges and capitalizes on the price difference to make quick profit.
Triangular arbitrage trading
This type of arbitrage trading is also very popular and is also seen in the crypto space. Triangular arbitrage trading is basically a trading that involves capitalizing on the price differences between multiple crypto pairs. In triangular arbitrage trading, a trader sells a particular cryptocurrency for another cryptocurrency, sells that for another cryptocurrency and finally selling that cryptocurrency for the first cryptocurrency to make profits by having more quantity.
Benefits of Arbitrage Trading
Low-Risk - The risk level that is involved in Arbitrage Trading is very low that is why it considered as a very safe trading by a lot of traders. All the trader needs to do is to be quick enough to spot and capitalize on the price difference either on different exchanges or different crypto pairs, because the price differences might not last long if other traders discovers the opportunity too.
Quick profit - This is one of the main benefits of arbitrage trading. A trader can make quick profits if he is quick enough to capitalize on the price differences between two exchanges or two crypto pairs.
