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What is arbitrage on cryptocurrency exchanges and how does it work these days?

Over the past 5 years, the popularity of cryptocurrencies has grown exponentially. What 10 years ago was perceived as a joke and a fleeting hobby of programmers, today it actively fills the information field and is constantly heard by the average user. How did the seemingly fictitious “pseudo-currency” become a global trend? Let's figure it out!

Cryptocurrencies, what is it and how did it all start?

We will not start with the development of Bitcoin and look for the one who first created the "crypt". Let's consider the state of affairs of the currency in its modern form. Now cryptocurrency is a kind of resource, the value of which is determined by various factors that depend both on the exchange where they are traded and on the structure of the crypt. The cost of a crypt is also determined by the methods of its extraction – "mining". Although the material value of the cryptocurrency is equal to 0, for some reason its value breaks through the next financial ceiling. It turns out somehow illogical.

Everything is elementary. Cryptocurrency is a decentralized financial unit. Its material value lies in the electricity / power spent on its creation. The real price, in turn, varies from site to site. The course and trends of conditional bitcoin are determined on a principle similar to the promotion one. There is a misconception that buying / selling cryptocurrency works according to the principles of forex exchanges. It is incorrect for the same reason why the crypt is not recognized as real money.

It's all about real (material) wealth. Currency is a kind of equivalent to the economy of the state. Its cost is determined by many factors.For example, the dollar is, in simple terms, the sum of industrial capacity, government debt and business contracts divided by the number of US banknotes printed. Cryptocurrency, in turn, is simply an auction unit. Its cost is proportional to the funds invested in it.

Materially, except for the energy and power of the equipment, it is not supported by anything, but from the financial side the following comes out. Each exchange is a platform with its own denomination. Prices can vary by several thousand dollars. Why is that? And the thing is that the currency is decentralized and its value is determined by individual platforms. On one of them, the maximum and minimum value of the transaction is one, on the other - the other. That is why hardly anyone recognizes the official status of the cryptocurrency.

But if you are interested in making money virtually out of thin air, then Bitcoin and the like are one of the best options. By investing in cryptocurrency, you literally acquire a position in the auction and, if the circumstances are successful, you sell it.

cryptocurrency arbitrage - what is it

Consider the principle of transactions in the market. It can also be called arbitrage on cryptocurrency exchanges. That is, someone acquires an asset for the purpose of its further resale at a more favorable rate. There are two types of cryptocurrency arbitrage:

  • intra-exchange
  • external

We will consider each of them separately, but it should be noted. Cryptocurrency arbitration relies heavily on a decentralized system. Trading itself predisposes to crypto exchanges between platforms. This allows you to make profits both faster and more.After all, the change in the course of the conditional Ethereum on one site will be gradual, and not one-time. At the same time, on another exchange, it is likely that Ethereum will be more expensive. But before considering transactions based on cryptocurrency, you should understand the principle of transactions of a similar nature on financial exchanges.

Forex short-selling and arbitrage

When opening an account in forex, a trader (or broker) can carry out many operations. Forex exchanges are often the most popular among banks and other equally wealthy financial institutions. But besides the scale of state-owned enterprises or large corporations, there are also small foreign exchange markets, the minimum entry price of which allows almost anyone to try their hand at the "game." The so-called short-selling is especially popular on such exchanges. Transactions no longer than one day in length. Not infrequently, they provide for the transfer of a certain amount to the other end of the planet (this is often the case). There they are used and if the case "burns out", then they return it back with a percentage on top.

But besides the "shorts", you can also find classic arbitrage trading. It involves buying currency for a certain amount and selling it at a better rate. This method is most common on small platforms. If you buy or sell on time, there is a chance to earn significant sums, but for this it is advisable to understand the economic and political processes taking place with the country as a producer of funds. This knowledge allows you to predict price changes and develop an effective action plan.

A distinctive feature of Forex exchanges can be called their decentralization. Different platforms offer different methods of doing business. Some may offer a "game" exclusively within the site, all users of which are in the same region. Others make it possible to conclude deals with companies represented in other countries, etc.

There are also restrictions in the interaction of two (or more) exchanges. In simple words, buying and selling something from one platform to another is prohibited or complicated. Forex exchange is a trading platform where real currency acts as a commodity. But cryptocurrency exchange platforms have much in common with it. How do market rules work for them? Let's take a closer look!

Cryptocurrency arbitrage, what is it?

All financial transactions with Bitcoin, Ethereum, etc. rely on a few rather specific mechanics. The first (for many opponents – the main one) is the convention of currency. Its denomination was created artificially and also fluctuates unnaturally. The second is that the cost is not tied to exact indicators. Let's dwell on this and consider in more detail.

Since cryptocurrency is not tied to anything real, its price depends on the funds invested in it. But crypto exchanges are often a closed platform (with rare exceptions – we will consider it further). Their prices are formed from the internal flow of purchase / sale. The unit cost does not depend on economic processes and is directly calculated based on the purchase / sale indicators.

forex, crypto arbitrage leads

Since cryptocurrency (regardless of its type) is a kind of storage of funds, the trading principle is slightly different. To some extent, this is the reason for the chaotic unit prices. If the cost of a conditional Bitcoin is $ 15,000, then in the case of a purchase, it increases depending on the invested funds and the amount of currency on the platform. Then prices rise, and the "storage" becomes more expensive, thereby becoming profitable for sale. In simple words, you can buy a certain amount of crypto for $ 15,000 and then sell it for $ 16,000.

But others trade according to the same principle. They create constant fluctuations in the rate, then raising, then lowering the value. But often 60-75% of the price depends not on the bulk of the depositors, but on several large “players”. Their invested capital directly affects prices and allows them to be fixed at a certain indicator.Considering that most platforms depend on one or two individuals who have invested large capital in cryptocurrency and created its indicator, many people are skeptical about the idea of ​​buying any cryptocurrency.

Cryptocurrency arbitration is not fixed. He is independent of virtually everything except the wishes of the depositors. If we draw parallels with the Forex market, then there each currency is measured by the level of capitalization of all enterprises (public and private) in the country. At the same time, on cryptocurrency exchanges, no one except the main investor knows what will happen and when. It is somewhat reminiscent of a run through a minefield, only instead of a chance to lose legs or arms, the investor risks losing the invested funds.

Due to this specificity, brokerage on crypto-related platforms has not gained popularity in the world. But the profession of “miner” became known. They are the ones who ensure the constant flow of items to the platform. If the miner personally trades in the set currency, then according to the exchange criteria, he will be a trader.

But if you are not deterred by such difficulties and you still intend to invest in cryptocurrency and “play” on it. Then you should familiarize yourself with two types of trading on crypto-exchanges.

Intra-exchange cryptocurrency arbitrage

Cryptocurrency trading is directly dependent on the platform (exchange). This means both the cost and benefit of the deal and the opportunities for individual players. For example, conducting transactions between exchanges can take time, since there is a transfer delay, verification complexity, etc. At the same time, intra-exchange arbitrage implies the exchange of units within one platform. It is well suited for beginners, as it allows you to devote time to studying the rules and prices of one exchange, and not dozens of different ones. Thus, cryptocurrency arbitrage within the framework of one platform is a classic (albeit slightly simplified) “game”. All you need to do is keep your nose downwind, manage to mark the purchase/sale and invest or withdraw money on time.

Simplification consists in similar rules and subjects of the “game”. The investor invests in cryptocurrency, and not in shares of agricultural enterprises or other industries. Bitcoin assets depend only on the volume and scale of mining, as well as the funds invested. They are not affected by crop factors, availability or scarcity of materials, etc. And the decentralization of the currency leads to the leveling of the price for electricity in a particular region (removes material costs from the price).

If you are interested in investing in a crypto, for a start, you just need to invest money and play on the rise and fall. The programs and the exchanges themselves will help you with this, they monitor the slightest price jumps. The simplicity of the approach allows any broker to participate in trades without having to learn many third-party platforms. But at the same time, it is limited by one price range, which is unlikely to change dramatically.

Cross-Exchange Arbitration of Cryptocurrencies

Unlike the method above, cross-exchange arbitrage has both more threats and more profit. Let's look at it in order.

Unlike intra-exchange arbitrage, inter-exchange arbitrage is a cryptocurrency trading between several sites. A trader needs to know the current rate of the crypt he is interested in on several exchanges, and it is also desirable to understand such specific issues as transaction delay and verification time. Let's take a closer look.

By purchasing a conditional bitcoin, the user receives an information unit, which on the platforms represents a specific amount. The first thought is to sell it. After analyzing the upward/downward trend on the current platform, it becomes clear that no particular plus (significant) is expected. Then it is logical to look for a place where you can sell it at a profit. This is where "room for maneuvers" opens up. There are many sites dedicated to cryptocurrency trading, and the user always has a choice. They differ in the current rate, registration conditions and verification time. Far away, every cryptocurrency exchange allows the withdrawal or exchange of funds, but where there is no prohibition, there are conditions under which transactions can be carried out. This was done on purpose, because otherwise the already fragile structure turns into a house of cards. Each depositor can inflate the price to the clouds (by transferring large funds) and instantly withdraw them. The randomness of the currency will lead to chaos on the platform itself.

OTC arbitration is largely regulated by the platform administration. Because of this, it is impossible to make huge profits by transferring cryptocurrencies from one to another. But it will allow (in the case of injecting funds on one platform, and withdrawing them to another) to earn a certain percentage. True, you need to keep in mind that these should be either large or massive transactions.

Cryptocurrency arbitrage site: where to start and what to do

The prevalence of cryptocurrency is directly related to the popularity of resources where it can be sold. Although the attitude towards crypto is poor, more and more corporations, medium-sized companies, and ordinary people use Ethereum, Bitcoin, Monero, Litecoin, etc.

Web resources that offer cryptocurrency trading are required to offer both an effective system for protecting user accounts and accurate, fast schedules. But if the web page works well, everything is ready for the user, the next problem arises. The client must appear – he must be interested. Effective lead generation will help you with this. Read about her below.

Leads for a site on forex, crypto arbitrage

The number of sites devoted to arbitration of bitcoin and similar cryptocurrencies is currently great. Competition in online trading is fierce and intense. To develop the platform, it is desirable to acquire a target audience from the very beginning. Our company can help you with this. It is enough to buy financial leads, and ready-to-buy users will appear on your Internet resource.

Our company offers lead generation on trading and financial platforms. We provide services for the creation of heated traffic in the EU and CIS countries. We offer exclusively interested and solvent clients.

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