Cryptocurrency arbitrage bots have been expanding in recent months and the became very popular among traders. The main reason behind it is related to the increased volatility in the crypto market.
There have been several digital assets that moved from pennies to billions of dollars in market valuation while other coins remained relatively stable. However, there are some platforms that take some time to adjust their prices (due to supply and demand). This provides a great opportunity to perform arbitrage trading.
What is Cryptocurrency Arbitrage?
Cryptocurrency arbitrage is one of the main activities that can be conducted by a trader in the market. In order to search for arbitrage opportunities, a trader is constantly looking for price differences across cryptocurrency exchanges.
In this way, with the help of a cryptocurrency arbitrage bot – and sometimes manually – it is possible to make profits by purchasing a digital asset in one exchange (where the virtual currency is traded at a lower price) and sell it in another exchange (for a higher price).
The difference between the purchasing price and the selling price is the profit made by the trader. However, there are some things we need to take into consideration before we start doing cryptocurrency arbitrage.
The first thing we should consider is related to the fact that arbitraging in the crypto market could not be profitable if volatility is very high. If the price of an asset fluctuates during the time you make the transfer from one exchange to another, the profits could be reduced to zero or eventually lose.
Fees are the second thing we should take into account. The larger the fees for withdrawing funds from an exchange the less profitable our trade would be. You would also remember that Bitcoin (BTC) or Ethereum (ETH) transfers have also fees. The larger the congestion in the network, the higher the fees you will pay for processing the transaction.
Cryptocurrency Arbitrage Bots Explained
Although the whole arbitrage strategy could be processed manually, it is much better and efficient to use an arbitrage trading bot. The arbitrage trading bot will reduce the need for using and implementing these strategies manually.
With a trading bot, we can automatically search for different exchanges and compare the price of an asset. In this way, we do not have to search for it manually on different platforms. Thus, a cryptocurrency trading bot helps us with the visualization of prices across different exchanges.
At the same time, the trading bot, depending on which one we use, would process the whole transfer without our intervention. That means that it could take just a few minutes to make the whole arbitrage trade.
Rather than buying the coin, executing the withdrawal, selling the coins once again and profiting, the user can easily rely on a cryptocurrency arbitrage bot. Some of the cryptocurrency arbitrage bots carry out the transactions by keeping the number of funds on both exchanges equal.
Thus, a cryptocurrency arbitrage bot makes it much easier and faster for an investor to trade in the cryptocurrency market. In just a few simple steps, the bot would process most of the transactions and keep your portfolio in order.
Rather than relying on manual tools, cryptocurrency arbitrage bots make it fast and seamless for investors to discover arbitrage opportunities on a regular basis.