What is the Spread in cryptocurrency arbitrage and how to calculate it?

Definition

Spread - the difference in the price of an asset between the buying price and the selling price. Essentially, every asset has two prices: the price at which it is sold and the price at which it is bought. The resulting difference between these rates is called the spread. 

Simple example: there is one exchange where Bitcoin costs $95,600, and there is another exchange where Bitcoin costs $95,605. The $5 difference in rates is called the spread, and for those who speculate on the cryptocurrency rate (arbitrage), it will be a profit.

Types of Spread

There are many classifications of spread, but out of all the variety, two main types are distinguished:

1. Fixed spread. From the name, it is clear that the difference between the buying and selling price is always the same here. Its main advantage is stability. Among the disadvantages, high values can be noted, which cannot be reduced in any way. Examples of using such a spread can be found among brokers: by providing access to cryptocurrencies through CFDs, they can use a fixed spread for trades. This ensures stable conditions for traders but may be less profitable during low volatility, as the spread remains unchanged regardless of market liquidity;

2. Floating spread. This is more realistic and can be found everywhere, although some associate it more with the cryptocurrency market, as volatility here is a common occurrence. 

It is also worth mentioning paired spread: it involves tracking and trading two or more assets. This approach requires serious knowledge of market processes, detailed analysis, and quick reaction. Here, the potential profit can be twice as high, but such a method will not suit everyone: the entry threshold in terms of knowledge for beginners is too high. 

Also, do not forget about the trading commissions of the exchange, which are also called spread. They can be included in the cost of the asset or charged separately. 

How Spread is Calculated

There are two main factors that determine the spread: 

• Liquidity. This refers to how easily an asset can be bought or sold. The more market participants are interested in the asset, the more it will be traded—consequently, the asset is liquid, and there will be no problems with its acquisition and sale. An analogy can be drawn with the cryptocurrency market: Bitcoin is a liquid asset that can be bought or sold at any time of the day on most existing exchanges. But if we take another meme coin, there may not be enough liquidity: you can easily buy it, but selling it at a higher price will be difficult because there simply won't be buyers at that price; 

• Market trend. If there is a trend in the market, the likelihood of a spread appearing increases. This is especially possible in the cryptocurrency market, as there is no central authority that adjusts prices for tokens across all exchanges and platforms. Therefore, exchanges are forced to adjust the rate themselves, and it will not always be similar to other platforms. This can mainly be noticed during periods of rapid growth or decline: from a few percent per day. 

Non-core factors determining the spread can include fundamental factors, but this does not apply to all assets, especially in the cryptocurrency market. For example, if the US decides to create a state reserve from BTC, the market will react positively to this news, traders will want to open positions on BTC—the price will go up. But if it's about some little-known token that has partnered with a relatively average company, it may not affect the price at all.

Earning with Spread - Methods, Examples, Nuances

Earning with spread today can be called cryptocurrency arbitrage. As we have already found out, a floating spread in the cryptocurrency market occurs more often than in others, and this opens up many opportunities for earning. 

However, the problem is that if you believe the monitoring service CoinMarketCap, today there are more than $2.4 million cryptocurrencies. Manually tracking the spread even for 1% of this number will be an impossible task for a human. 

The market has had a solution to this problem for several years—Arbitragescanner. The service provides advanced tools for tracking spreads on different exchanges and blockchains. Among them, the following can be highlighted: 

• Cryptocurrency Scanner and Screener. This tool offers advanced options for finding links. You can choose any of the supported exchanges, specify the coins of interest for tracking price differences, and set the minimum and maximum profit. Now the bot will regularly send notifications (every 2 seconds) as soon as profitable arbitrage links are found, which you can use to make a profit;

• Futures Screener. This is a unique tool that you won't find on other services. It allows you to find links between spot and futures markets. This is one of the most profitable and low-risk arbitrage strategies. ArbitrageScanner is the only service where you can perform arbitrage using these strategies—and it is here that service clients already earn 40-50% on their deposit every month.

Conclusion

Cryptocurrency arbitrage has a huge advantage—it does not depend on the market trend. The price difference appears both in a falling market and in a rising one, the main thing is that the asset is traded. Therefore, the arbitrage strategy can be adapted to any market. And ArbitrageScanner will help you with this—the best service for cryptocurrency arbitrage!