Step-by-Step Guide to Conducting Cryptocurrency Arbitrage

The main method of arbitration

Most people think that cryptocurrency arbitrage involves buying currency on one exchange, transferring it to another, waiting for the funds to arrive at the second exchange, and then selling it at a higher price.

This doesn't work! By the time the coins arrive, the exchange rate may have already changed, putting you at risk of making a loss. Moreover, during volatile periods, the rate can drop by as much as 50%. It might work a few times, but in the long run, you'll end up in the negative.

Important! The essence of arbitrage is to spot the price difference and instantly sell at a higher price on one exchange while buying at a lower price on another.

It doesn't matter if the market is falling or rising; you'll still be able to earn.

Read everything carefully, not in five minutes. This is a concise summary of our five-year experience in this field and all our mistakes. You must understand every line of the file.

The best way to apply arbitrage is to invest in a promising coin or arbitrage with coins from your portfolio.

We work with coins that we have held for the long term. This is crucial. No obscure coins that show a good spread. You need to thoroughly research all projects and only then buy coins from a project when you are confident that it won't turn into a scam and that the coin will continue to grow.

How to make instant exchanges on exchanges

In order to arbitrage, we don't need to withdraw the cryptocurrency. We buy on one exchange and immediately sell on another. To sell instantly, we need to have a balance on both exchanges!

Now let's go through an example with EOS:

1) Let's say you bought 1000 EOS coins for $1000 (at a rate of $1 per EOS).

2) You researched the exchanges where the coin is traded and found a pairing between Gate and Kukoin that suits you.

3) You deposited 1000 EOS to your Gate exchange balance and 1000 USDT to Kukoin.

4) At some point, you compare the exchange rates and see that on Gate, where your EOS coins are held, the rate has become 1.01 USDT, while on Kukoin, it's 1.00 USDT.

The difference is 1%, with a commission of 0.1% for buying and selling on both exchanges. So for two transactions, you will incur a loss of 0.2%, and the net profit will be 0.8% from this round. (We'll show you how to reduce this commission over time.)

5) Look at the order book to see the volume of orders. You see that someone is willing to buy at a rate of 1.01 for $4000, while on the second exchange, people are selling coins at a rate of 1.00 for $10,000. The price has remained at the same level for a long time.

The smaller-sized order may be filled much faster, so it's better to work with it first to ensure you can make the trade in time. In this case, we sell first and then buy.

6) You sell 500 EOS coins on Gate and immediately buy 500 EOS coins on Kukoin. All of these transactions take less than a second. You sell on one exchange, switch tabs, and buy on the other.

Then you sell another 500 EOS on one exchange and buy 500 EOS on the other exchange.

Important: Only execute a trade for up to 25% of the order volume in the order book at the desired prices. This is an important rule! If you don't follow it, you may end up closing the trade at a loss because someone else may make a trade at your desired price, and you will be able to sell only a portion of the coins, not all of them.

As a result, you have 1008 USDT in your Gate balance and 1000 EOS on Kukoin. You paid a total of $2 in commissions. Ultimately, you earned $8 in just a few seconds.

This is the essence of arbitrage. Without significant risks and losses. It doesn't matter if the market is falling or rising, you will still make a profit.

You can track everything manually, but there are various bots that will do everything for you, we'll talk about them a little later.

You instantly execute a trade between two exchanges without any withdrawals, simply buying and selling. In the process, the initial quantity of tokens you have remains the same, but the amount of USDT or other cryptocurrency you arbitrage with increases.

7) Then you wait for the moment when you can arbitrage in the opposite direction to break even or make a profit, or simply withdraw USDT to Gate while leaving the EOS on Mex.

Gradually, round after round, you will increase the amount of USDT, while the amount of EOS remains the same.

If there is good volatility, you can have 10 or even 100 rounds in a day with a significant difference!

Here's an example that happened with Luna, the price difference between Gate and Binance reached 50% during a drop, and then the withdrawal was closed. I increased my capital in USDT and recovered the investments in Luna more than threefold when it was closed. I executed the trade, waited for it to break even, and then the price difference appeared again. That's how I arbitrage even with withdrawals closed.

Starting from 2017, we were arbitraging on pairs such as ZEC/BTC and ETH/BTC, increasing our capital not in dollars but in bitcoins, which we held onto. We earned $500 in a day, but we kept them in bitcoins, and they turned into $5000.

Now let's go through the same thing but with examples and visuals.

Example 1

(A client's example with a capital of $100)

Coin SIS, a pair between Bybit and Gate, on a small volume.

We sell the coins on Gate at a price of 0.0725.

Immediately buy the same amount of coins on bybit at 0.0713

We sold 84 coins for 6.09 USDT and bought 84 coins for 5.9892 USDT.

Profit is $0.1 or 1.6%.

Yes, it's a small amount, but you can try selling a larger volume if you place a sell order on Gate instead of selling at market price. (This will be discussed as a separate topic later on.)

In this specific case, the coin itself has a trading volume of $20,000 per day, so arbitraging can only be done with small amounts here.

The next round appeared after a couple of minutes.

We buy at 0.0710.

Total of 335 SIS coins.

Total cost: 23.785 USDT

We sell on Gate at an average price of 0.0719 (part of the coins at 0.0737, part at 0.0717).

Total of 335 SIS coins.

For a total of 24.086 USDT.

Profit from the round is 0.301 USDT or 1.2% (if we consider the commission, then the profit is 1%).

And that's how you can make $1000 by moving coins throughout the day, making around $10 profit on each small coin, and you can have a lot of such coins. Moreover, not all coins have such low trading volumes.

For this particular coin, the profit from the round (spread) was 1% on the regular market, but I also caught larger spreads on it. Additionally, during the start of this project, when news of a major partnership was announced, there was strong volatility, and on Gate, you could buy it for $4.01 USDT and sell it on ByBit for $7.20 USDT, a 55% profit per round. This is rare, but such moments can be captured during high volatility. There will be more information about this in the upcoming lessons.

Example 2

Waves coin, a link between waves exchange and bybit

Sell 1140 waves for 1747.62 USDT

Buy 1,140 waves for 1,610.8 usdt

Profit: 130.82 USDT or +8.12%.

It may seem like everything is good, and we made a decent profit, but here's the catch – you cannot withdraw to USDT from this exchange.

At the moment when the screenshot was taken, you could buy BUSDT for USDT at a price of 1.06. In this case, the profit would have been 2.12% without considering withdrawal fees.

Always check the availability of withdrawals for the coins you are arbitraging! Especially if you notice a significant price difference, as it often happens when withdrawals are closed.

We will explain in the upcoming lessons how to find out in advance about withdrawal closures for maintenance.

By using arbitrage, you will be able to recoup all your investments in a token within 2-3 months at most and gradually grow your portfolio.

Don't expect that with a large sum, you will be able to make 5-10% profit every day. A more realistic range is 1-3%.

In the long run, this is a very good strategy that will help you constantly increase your capital and offset losses when the token drops. Moreover, during a continuous drop, you can make multiples of your investments with high volatility, and during a sharp increase in the coin's value, you will not only earn from your investment but also receive a bonus from arbitrage.

Currently, the market has reached its lows, so in the long run, there will only be growth, which means you will profit both from the token in the long run and from arbitrage.