However, it still doesn’t amount to much unless you put large amounts of money at risk.Īnother thing to take into account is that it can take up to 7 days for fiat deposits to appear on an exchange due to how slow the traditional banking system is.ĭuring that time, the spread can change drastically and eliminate any chance for arbitrage. Keep in mind that the bigger the spread (the difference in price between buy and sell orders), the more profitable the arbitrage. Once you get to deal with such large amounts you can reduce your trading and withdrawal fees by using OTC (Over The Counter) services. In the case above, the main thing that’s eating away at my profits is the withdrawal fee from CEX. All of this suggests that making a profit through Bitcoin arbitrage is quite a difficult task. As you can see, my “real world” profit comes to about a $10K loss, while I’ll need over $1.1M in capital. If you want to clone this calculator for yourself, feel free to make a copy using this link. I’ve taken the liberty to create some sort of Bitcoin arbitrage calculator using a Google spreadsheet to show you how hard it can be to actually generate a profit. Now that you know what you will face in a real-life Bitcoin arbitrage trade, let’s take an example that includes all of the different variants and fees involved. There weren’t many buyers on the exchange).Ĥ. An interesting example is what happened during the last days of Mt.Gox where the price of Bitcoin was extremely low, since traders didn’t trust the exchange to allow them to withdraw their funds (i.e. Keep in mind that price differences can also reflect technical issues or reputation issues of an exchange.Transaction volume needs to be high enough on both exchanges to satisfy such large orders of buying and selling.Exchanges fees, which I have overlooked in the given example, will eat away at your profits.Many exchanges require considerable verification steps in order to trade a large amount of Bitcoins.It may take some time to verify transactions (to and from exchanges), and during this time the price of Bitcoin may change.When trying to arbitrage you’ll probably encounter several setbacks: However, in real life things are even more complicated than the simplified example above. Total profit – $1,164,500 – $1,156,100 = $8,400Īn interesting thing to notice from the example above is that we need a relatively large amount of capital in order to make a substantial profit via arbitrage. Number of Bitcoins bought in Bitstamp – 100 In a perfect world you’d make $87 per Bitcoin. Let’s say, you buy 100 bitcoins on Bitstamp at the rate of $11,561 each, and subsequently you sell them on CEX.io at the rate of $11,645 each. The difference between prices is $84, and this is quite a decent opportunity for arbitraging. At the time of writing, the price of Bitcoin on Bitstamp is $11,561 while the price of Bitcoin on CEX.io is $11,645. Let’s take a simple arbitrage example in order to illustrate how arbitrage is done. A Simplified Example of Arbitraging Bitcoin Here is a great video by Andreas Antonopoulos about why arbitrage opportunities exist:Ģ. On top of that, some exchanges have very low trading activity on them, which makes Bitcoin’s price on them much more volatile.Īs a result, some people try to buy Bitcoins “for cheap” on one exchange and then sell them at a higher price on another exchange. You can view exchanges as closed markets that aren’t directly linked. Since different exchanges have different amounts of buyers and sellers with different preferences, it’s only natural that prices won’t correlate 100%. On any exchange, the price of Bitcoin is determined by the last trade made on that exchange. buying at a low price and selling at a high price) we need to understand what “ Bitcoin’s price” really means.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |