Making Money with Bitcoin Arbitrage: Exchange Vs Exchange
Bitcoin trading, at its core, is simple to master. You buy at the lowest price possible at the time and sell at a higher price. However, moving from position A to position B isn’t as easy as it would seem. When you take advantage of the learning aids out there, the process starts to become a little bit easier. But, as with any form of trading, nothing is ever guaranteed when you invest in cryptocurrencies.
Playing the Exchange Game
For novices, one of the most effective ways to trade is by using a strategy known as arbitrage. While this system requires a little bit of research, you will find all the tools you need both here and elsewhere online. In simple terms, arbitrage trading requires you to buy Bitcoin at one exchange and then sell it on another. For example, let’s say you’ve read our reviews and selected Kraken exchange for its low fees and liked the Binance review because it shows the service has almost instant transaction times. At this point, you need to watch the price of Bitcoin on both exchanges and look for price differences.
In this instance, BTC may be trading at $1,000 on Kraken and $1,100 on Binance. With $100 in profit up for grabs, your job is to buy coins at Kraken and then sell them at Binance. In theory, using this exchange vs. exchange method is great. However, in reality, it’s tough to pull off. Because you will need to move money from site to site, you have to be quick off the mark. In the old days, when Bitcoin wasn’t as popular, the average processing time would be no more than two minutes. Today, however, the network is so busy that transactions can be subject to long delays. Fortunately, there are two ways to overcome this.
Trading at a Premium Counts
Firstly, if you’re moving around large amounts, these will be processed quicker than smaller amounts. Secondly, if pay a higher fee it will get picked up by miners a lot faster. Because miners now have more choice when it comes to what they process, they’ll often take the better paying blocks first before dealing with the smaller transactions. Therefore, if you want to use arbitrage trading in this manner, you’ll have to pay a premium to ensure you can complete the transfer before the prices change too drastically. Obviously, whatever you pay will have to be factored into your overall investment.
Unlike the traditional trading world, crypto exchanges aren’t as efficient. This makes arbitrage trading a little tougher than it otherwise would be. Of course, that doesn’t mean it’s impossible. An alternative to the standard exchanges where you buy the underlying asset is brokers. On reputable platforms, trades take less time because you’re not buying and selling the underlying asset. Instead, you’re speculating on the price movements. This means you can dip in and out a lot faster. Although this method requires a different mindset, it can be just as profitable as arbitrage trading if you’re willing to learn the basics and invest sensibly.