The Art of Cryptocurrency Arbitrage: Strategies and Tips

Understanding Cryptocurrency Arbitrage

Cryptocurrency Arbitrage – earning from the price difference of digital assets across different exchanges. The price difference is called the spread, and it arises because cryptocurrencies do not have a central authority providing accurate quotes for all assets. The price on each exchange or service is determined by supply and demand, as well as the liquidity provided by the platform. 

For example, an exchange might have a high demand for a coin but lack liquidity (those who want to sell it). In this case, the price of the coin starts to rise above the market price because the demand for it on this particular platform is higher than on others. 

Thus, an arbitrage situation arises: the price of the coin is higher on one exchange than on another, so you can buy the asset on the second exchange and sell it on the first, profiting from the price difference. 

In recent years, cryptocurrency arbitrage has become more complex: major exchanges deploy bots that automatically balance liquidity if they detect a shortage. However, arbitrage does not stand still: new opportunities for earning on cryptocurrency regularly emerge, allowing traders to mitigate the exchanges' innovations. 

Types of Cryptocurrency Arbitrage

Essentially, for the average person, only one type of arbitrage is accessible – between exchanges: buy cheaper on one exchange, sell higher on another. We will discuss strategies in the next section.

There is also international arbitrage, but it is not suitable for the average person, no matter how much bloggers from social networks try to assure you otherwise. Let's provide a small example: suppose you find a link that involves buying USDT on an exchange, sending stablecoins to another country, where your contact exchanges them and withdraws them to an account. After that, the local currency obtained is deposited on an exchange, more USDT is bought than you sent, and it is sent back. 

The earnings from such links are approximately the same as from inter-exchange arbitrage, but there are a couple of nuances:

• First, you need to acquire USDT by purchasing it on an exchange or from individuals;

• Next, you send USDT to a platform through which your contact can exchange USDT for local currency and withdraw it to an account. Problems with local regulators can start here: they may ask you to clarify the origin of the funds;

• Even if this problem is avoided, another arises: such a link clearly takes more than an hour, so there is no guarantee that the profit will be satisfactory upon completion.

And the most important question: where would an ordinary person find a recipient from another country who would honestly conduct the transaction and send the money back? At best, this could be a friend or family member who might not want to engage in this. 

Therefore, it is better to stick to cryptocurrency arbitrage between exchanges, where everything will be under your control.

Proven Cryptocurrency Arbitrage Strategies

In 2024, three main cryptocurrency arbitrage strategies can be identified. We will discuss each one separately.

Spot + Spot

This strategy is the basic one; this is how cryptocurrency arbitrage began. 

The simplest implementation is to buy a coin cheaper on one exchange, transfer it to another, and sell it at a higher price. 

A more advanced method involves purchasing the coin in advance. Suppose you know that a spread regularly forms between two exchanges for a specific coin. You transfer the coin in advance to where the rate is usually higher. When an arbitrage situation arises, you sell the coin on the exchange where it is more expensive and buy it on the other exchange where it is cheaper.

In essence, you can buy more of the asset with the price difference or keep it as profit. 

Spot + Futures

A relatively new but highly profitable type of cryptocurrency arbitrage. The essence is as follows: find two exchanges, the first one should have a lower spot price for the asset, and the second one should have a higher futures price for the asset. The price between spot and futures balances out, so such moments indicate an arbitrage situation. 

Next, you need to buy the coin on the spot and the futures with 1x leverage, and then wait for the price to converge, which may take some time. 

Pay attention to the funding rate: it is paid for the price difference between the spot and futures. When opening a futures contract, it can be positive or negative. With a "+" sign, long position holders will pay short position holders, and vice versa.

This moment affects the final profit, so it should be considered. 

Futures + Futures

This strategy is similar to the previous one, except that both positions are opened on futures, one long and the other short. 

The main difference between the strategies is that here you need to monitor the funding rate, especially if you want to enter a trade using leverage higher than 1x, as the higher the leverage, the higher the funding rate. That is, you will either receive an increased amount for holding the position or pay more to those who opened the opposite position to yours. 

Tools and Services for Cryptocurrency Arbitrage

There are enough tools for cryptocurrency arbitrage today, but there is one problem: they are rarely concentrated in one place. The only service that has everything you need for cryptocurrency arbitrage and more is Arbitragescanner. 

Here users can find:

• Cryptocurrency Scanner. Finds profitable links between the exchanges and tokens you choose. Arbitrage is more profitable than staking. Here you control your asset and can quickly sell if the token price drops;

• Cryptocurrency Screener. Here, the service user can receive links for CEX and DEX exchanges, as well as for the added list of coins. Additionally, you can add a blacklist of coins that will not be provided with links;

• Futures Screener. Finds links for spot + futures, futures + spot, and futures + futures strategies. In the search filter, you can specify many parameters that will help find the most suitable links for your strategies and capital. In the service's blog, there is a case from a user: the futures screener showed that there is a difference in the MUBI coin between the Gate spot and MEXC futures, after which the user opened a short position on MEXC, and on Gate bought the asset on the spot, and waited for the price to converge on both platforms. 

• The service also provides real-time funding rates on all supported exchanges, allowing you to reduce the time spent checking funding and make decisions faster. 

Moreover, Arbitragescanner provides tools for on-chain analysis, namely:

• AI Wallet Search. An innovative feature for selecting wallets based on existing ones. The service's algorithm considers 512 criteria when searching, allowing it to find insiders and wallets hidden by the most successful traders;

• Mass Wallet Analysis will allow you to avoid the routine comparison of wallets and entrust it to Arbitragescanner. The user will receive the following information: which tokens were recently purchased by the analyzed wallets and which DEXs they interacted with;

• Wallet Search by Filters. If you are interested in a specific coin, this tool is for you. Here you can select the blockchain, coin, interaction time (last 7 days), and find wallets that have earned.

The tools provided by Arbitragescanner open up many opportunities for earning: both on cryptocurrency arbitrage and on blockchain data. Don't miss the chance to make a profit!

Tips for Successful Cryptocurrency Arbitrage: How to Avoid Problems?

All cryptocurrency arbitrage problems are mainly related to three things:

• Services that provide inaccurate or outdated information;

• Exchanges that may block funds from being withdrawn without explaining the reasons; 

• Suddenly increased market volatility, which can jeopardize the link if you are using traditional cryptocurrency arbitrage.

Let's go from the last to the first. To minimize the impact of volatility on arbitrage situations, you need to use proven methods. For example, as we have already written, a more advanced method of spot + spot arbitrage is to purchase the coin in advance, transfer it to the exchange, and wait for a suitable link. You will be able to save or increase your altcoins even with high market volatility. Suppose you discover an arbitrage situation; with just a few clicks, you buy on one exchange and sell on another, that's it. But if you had to send coins from one exchange to another, the price difference could disappear or even become lower than the purchase price. 

This brings us to the second problem – exchanges. It is not uncommon for platforms to block suspicious transactions (in their opinion). To avoid such situations, you should go through the identity verification procedure in advance, enable two-factor authentication, and preferably have some operations conducted on the account beforehand. 

If you manage to follow these rules, the exchanges will be more lenient towards you.

Now let's talk about services. What problems can users face here?

• Outdated and irrelevant information. Perhaps the algorithms of the services may not be set up correctly, or they send notifications to their users too late. Information about profitable links arrives at the end of its lifespan;

• A lack of tools on one platform can also play a cruel joke on the arbitrageur. When it comes to earning tens of thousands of dollars, all the tools that can help with this should be at hand;

• No educational information, instructions, or cases. Many people come to arbitrage without any experience, so educational material should be available on the platform. It is better when there are cases presented on Arbitragescanner in free access, as well as on the YouTube channel in video format. In this case, learning arbitrage will be much easier; 

When engaging in cryptocurrency arbitrage, it is important to understand what kind of service you are dealing with: one that provides any tools, gives up-to-date information, and provides analyzed cases, or one that helps you incur losses instead of profits. 

Conclusion

If you still have questions after this article, we have an offer for you: after purchasing a subscription to Arbitragescanner, you will be added to the most professional closed TG chat on cryptocurrency arbitrage, where you can learn a lot of new information and get answers to all your questions. 

Arbitrage is an opportunity to earn much more on cryptocurrencies than you have before. People from various professions come to arbitrage because they see how others earn and do not want to sit idle. And your reliable helper will be Arbitragescanner!