Cryptocurrency Arbitrage - a trading method that allows you to make money on the difference in the value of the same asset on different exchanges. That is, they bought it cheaper on one exchange and sold it a little more expensive on another exchange.
Types of cryptocurrency arbitrage
Inter-exchange arbitration
A classic arbitrage scheme in which a cryptocurrency is bought on the first exchange for $100 and sold for $102 on another. There are many strategies here, I will describe them in detail below.
P2P-Arbitration (people-to-people, person-to-person, peer-to-peer)
A type of arbitrage, the essence of which is to buy cryptocurrency (almost always USDT) for fiat (dollars, euro) in one place and sell it in another for fiat. For example, John buys 1000 USDT for 920 euro in cash at an exchanger, and sells it on Bybit for 928 euro per card.
Triangular Arbitration
Intra-exchange arbitrage of several trading pairs. For example, BTC is bought for USDT, BTC is exchanged for ETH, and ETH is exchanged for USDT. In my experience, this is the rarest type of arbitration. It should be borne in mind that the main danger here is that several coins are used in the transaction at once, so there is a higher chance that the rate of one of them will change and reduce the entire profit to 0.
Cryptocurrency inter-exchange arbitrage strategies
Arbitrage by spot + spot strategies
Buying a token on the first exchange for $500, selling on the second for $505. Here you need to take into account the risks: exchange commission for withdrawal, transfer time and volatility of the token exchange rate.
Arbitrage with coin holding
Let's say that you have some coin purchased as a long-term investment. You can get additional income from it by periodically engaging in arbitrage: you need to track the rate of this cryptocurrency on other exchanges and compare it with the one on the exchange where you store your coins. For example, if a token you have on the Binance exchange costs $100, and on the Bybit exchange it costs $98, then you can sell the crypto on Binance and buy it on Bybit. A very convenient strategy due to the absence of risks, but it requires time for monitoring or subscribing to a bot that will send notifications about the availability of arbitrage opportunities.
Arbitration using the spot + futures strategy
An interesting and little-known type of arbitration. The bottom line is that a short position is opened on some token and the same token is bought cheaper on spot. Earnings here occur at the moment when the price between spot and futures is compared. The financing rate also plays an important role here. It often happens that the earnings at the financing rate exceed the earnings from price convergence, but if the financing rate is negative, then you, as the holder of the short position, will pay it, and this can drive you into a loss.Situation: you buy a coin on spot for $1000, open a short position at $1100. The price settled at 1250, therefore, we lost $150 on futures, and earned $250 on spot.
Arbitrage using the futures + futures strategy
This arbitrage strategy is conceptually similar to the spot + futures strategy, but instead of buying on spot, you need to open a long position. A good strategy for small deposits, because you can use leverage, but you need to remember that leverage proportionally increases the risks and you can be liquidated.
Arbitrage using the futures + spot strategy
Applicable in a falling market. When the market falls, futures prices are usually cheaper than spot prices + the funding rate is negative.Situation: you sell a token on spot for $100, open a long position on it on futures for $97. Earnings will again be made when prices converge. But you need to watch carefully, because at some point the financing rate will become positive and begin to write off money.
Funding rate arbitrage
The bottom line is that exchanges offer different funding rates.Situation: on the BingX exchange the positive financing rate is 0.5%, and on the Gate exchange it is 0.2%. I can go long on Gate and go short on BingX, it turns out that I will receive a rate of 0.5% and pay 0.2%, respectively, the profit will be 0.3%.
Arbitration with decentralized exchanges (DEX)
Arbitrage with dexes can be carried out using all the previously mentioned strategies. This can be in different variations: CEX + DEX, DEX + DEX, DEX + CEX. There are even futures DEX exchanges such as Hyperliquid, AEVO.
Working with dexes is a little more complicated in terms of mechanics (in my opinion), but can give large spreads.
Arbitrageurs from the USA use dex, because many CEX exchanges do not work with Americans, and on decentralized exchanges there is no need to go through KYC (Know Your Customer).
Which arbitrage is the most profitable?
I believe that in 2024 inter-exchange arbitrage remains the most profitable and promising. My opinion is based on the opportunity to arbitrage using different strategies, without limiting yourself to the framework that exists, for example, in P2P.
If we talk about a specific strategy, I prefer spot + futures:
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Speed
There is no need to wait for the token to be transferred (as in spot + spot). I immediately placed one order on the spot, placed another on futures and that’s it. -
No risks
The method does not carry any risks if you do everything correctly and do not trade with leverage. -
Price fluctuations don't bother me
Wherever the price goes, I will be in the black - either spot or short will grow.
Cryptocurrency arbitrage bot
Of course, everything described above can be done manually, but it will take a huge amount of time. To automate the search for connections, I use the stable ArbitrageScanner. The service shows current links on strategies that interest me, and also provides training and 24-hour support.
My arbitrage case using the futures + futures strategy
In this case, my goal was to get a high financing rate and catch the price spread (difference in prices).
The futures screener showed that there is a spread and the opportunity to receive accruals at the funding rate for the token ZKL.
Looking ahead, I will say that I was able to take a lot more spread on this bundle.
Futures + futures strategy: open long (buy) on the exchange where the price is cheaper, and open short on the exchange where the price is higher. and then you wait for the prices to converge and close the deal, simultaneously receiving a financing rate.
I opened a long position on the Gate exchange, and a short position on the Mexc exchange.
I initially entered at 6,000 ZKL, planning to get a high financing rate, wait for the prices to converge and close the deal.
Spread made up: 0.415/0.4114 = 0,87%
However, then the spread began to increase and I decided to take the position to 11,000 ZKL coins.
The average short entry price was 0,435; and in long 0,4304 => final spread 1%
Then I waited for the moment and closed the deal completely.The average exit price from shorts was 0,52; and from long 0,5213 => managed to exit the trade with a difference 1,25%
On the Gate exchange, a long position brought me $1017.02 in income. On the Mexc exchange, the short position brought a loss of $938.32.
Profit = 1017.02 - 938.32 = 78,7$
Is it possible to make money on arbitrage in 2024?
As my experience shows, it is possible. But there is no need to fly in the clouds, this is work that requires time and desire to develop. I really don’t like storytellers who talk about cosmic sums in arbitration, but you can still earn money from this, even if not millions of dollars.
I hope the article was useful, and if you want to start arbitraging, I would be grateful for subscribing to this blog. I leave mine referral link on ArbitrageScanner, you can try testing it yourself. Ask questions in the comments, I will be happy to answer everything!
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