Exsploring Cross-Exchange Cryptocurrency Arbitrage

Cryptocurrency Arbitrage Between Exchanges

A price difference for the same coin between different exchanges often occurs, especially for coins with smaller capitalizations. For example, catching a spread (price difference) on Bitcoin is difficult. Its capitalization is $1.293 trillion – the asset is extremely liquid and popular, so even if a price difference appears, it disappears almost immediately. 

However, for coins with much smaller capitalizations, ranging from $500,000 to $100 million, the appearance of a spread is a regular event. An arbitrage situation or link (the appearance of a spread on a coin) arises due to market inefficiency: cryptocurrencies do not have a single center for regulating quotes, so exchanges and platforms orient themselves on supply and demand, as well as the average market price. 

An arbitrage link has a lifespan, so if you discover a spread, you need to take advantage of this opportunity quickly. Typically, links live from 10 minutes to 1 hour. After that, the price on both platforms stabilizes, and the arbitrage situation disappears. The problem is that finding arbitrage links manually is difficult: even if you succeed, the link may not live long. The arbitrage scanner from ArbitrageScanner solves this problem: you will receive notifications in Telegram every 4 seconds about appearing links.

Trading Strategies on Different Exchanges

There are two main strategies: arbitrage of a coin held by the trader or any coin with a spread. 

In the first case, the arbitrage is implemented as follows:

• Determine on which two exchanges a price difference for your coin most frequently occurs. This can be done using the arbitrage scanner from ArbitrageScanner;

• After finding the necessary exchanges, transfer the coin to where it is usually sold at a higher price, and transfer USDT to the other exchange where the coin is often cheaper;

• When a price difference appears, sell the coin on the exchange where it was more expensive and buy it on the second exchange with USDT at a lower price; 

• Then transfer the purchased coin to the first exchange, and the earned USDT to the second exchange, and repeat the cycle.   

In the second case, more time is required for implementation, but here you are not tied to any specific coin:

• First, find suitable links, which the arbitrage scanner from ArbitrageScanner will help you with;

• Then assess the profitability of the link. How to do this exactly – we will discuss in the next section;

• If the link is viable, transfer USDT to the exchange where the coin is cheaper, buy it, transfer it to the other exchange where it is more expensive, and sell it.   

On paper – both methods are fairly simple to execute, but there are several criteria that affect the final profit.

Finding Profitable Opportunities

When looking for profitable arbitrage opportunities, consider factors that will directly affect your profit: 

• Spread. This refers to how profitable it is to use this arbitrage opportunity. For example, the profit from one cycle could be 3%, but you might only be able to run $100 through it. There are links where the profit from one cycle could be 1%, but you can run $10,000 through it;

• Liquidity. Liquidity varies for each coin on each exchange. It is important that on the exchanges where the arbitrage situation occurs, orders are executed quickly – this affects the final profit because the longer you conduct the transaction, the higher the chance that the price will change for the worse;

• Fees. Every exchange charges two fees: the fee for crypto withdrawal (to pay the blockchain) and trading fees. While the former is practically the same for everyone, the latter varies significantly. This factor should be considered when finding a link;

• Withdrawal of Funds. In 2024, there are few platforms left that manually withdraw users' funds (if any remain), but the withdrawal of a specific coin may be blocked due to blockchain issues or high asset volatility. Also, to smoothly withdraw funds from the exchange, it is recommended to go through the verification procedure. 

Advanced Trading Techniques

A new trend in cryptocurrency arbitrage is the use of decentralized exchanges. This became possible due to the introduction of L2 blockchains, sidechains, parachains, and other technologies. The essence was that conducting a transaction on a DEX took some time (up to several minutes). This is not a long time if you are simply transferring funds, but in trading, it hinders profit-making. However, thanks to various innovations, this problem has been solved, and DEXs are now also used to find arbitrage links. 

There are three main strategies:

• Spot CEX + Spot DEX;

• Spot DEX + Spot DEX;

• Spot DEX + Spot CEX. 

It can be said that decentralized exchanges are currently leading in providing arbitrage links. If centralized exchanges have management that quickly corrects price differences, decentralized exchanges only have those responsible for the technical aspects of the platform. Because of this, arbitrage situations today occur more frequently on decentralized exchanges than on centralized ones, where they are also found by the arbitrage scanner from ArbitrageScanner.

Tools and Technologies for Trading on Different Exchanges

To receive current links for earning on cryptocurrencies, use ArbitrageScanner: 

• The arbitrage scanner supports many different CEX and DEX exchanges. It is a manual bot that does not require access to your APIs, ensuring complete security. All notifications come to a convenient Telegram chat, where you can set the format of notifications and choose the exchanges and cryptocurrencies you want to track;

• The arbitrage screener allows you to find links for both classic arbitrage and arbitrage through the withdrawal of funds. Unlike the scanner, the screener provides information on a large number of cryptocurrencies on various exchanges. It automatically searches for links and sends notifications about which exchanges it is profitable to buy and sell coins, as well as the possible income from the price difference. You can conduct up to 200 transactions a day with various coins, with profitability reaching up to 150% per day.

Conclusion

Cryptocurrency arbitrage on exchanges provides traders with unique opportunities to make a profit regardless of the market conditions. However, to successfully use this method, it is not enough just to monitor the appearing links; you also need to react to them promptly. Modern tools such as ArbitrageScanner help traders automate the process of finding arbitrage situations, significantly increasing the chances of success. Using these technologies, you can effectively manage risks and maximize your profit on the crypto market.