How to Arbitrage Cryptocurrencies

Cryptocurrency arbitrage is a trading strategy that takes advantage of price differences across exchanges. It’s a type of market-neutral trading that seeks to profit from price discrepancies between different cryptocurrency exchanges.

Arbitrage trading aims to profit from price differences across exchanges while ensuring minimal risk.

crypto arbitrage

What Is Crypto Arbitrage?

Arbitrage is the simultaneous purchase and sale of an asset to profit from a price difference. It has been used in traditional financial markets for years through what is known as “Statistical Arbitrage.”

In cryptocurrency markets, traders can take advantage of many types of arbitrage.

Volatility is the degree of fluctuation in cryptocurrency’s price, or the amount that the value changes over time.

Because of crypto’s volatility, its market presents numerous arbitrage opportunities. Across multiple global exchanges, cryptos are traded nonstop, allowing them to be arbitrage leverage anytime.

Here’s an example of cryptocurrency arbitrage in action:

Assume the price of Bitcoin is $25,000 in Kraken. We’ll also assume Bitcoin trades for $24,700 in Coinbase. A savvy trader could buy Bitcoin on Coinbase and then immediately sell it on Kraken for a $300 profit.

This process could be repeated countless times across other exchanges to generate more profits.

Why Are Crypto Prices Different?

The prices of cryptocurrencies can differ from one exchange to another for a multitude of reasons. The most common cause is the difference in trading volume on each platform. If an exchange has one million investors and another has three million investors, the higher volume exchange will have a higher price than the smaller one.

Another factor that significantly impacts crypto pricing is the type of exchange. There are two types of exchanges where investors can buy, trade, and sell cryptocurrency – Centralized and Decentralized Exchanges.

Centralized Exchanges

A single entity controls a centralized exchange. The prices on these exchanges are often more stable since they are not subject to as much volatility.

A centralized exchange is a third party between buyers and sellers. It is responsible for keeping assets secure and monitoring all transactions on behalf of the investors. However, because of its involvement in trading, centralized exchanges often charge high fees associated with buying and selling.

Centralized exchanges also allow investors to trade in and buy out with fiat currency, a significant selling point for users.

Decentralized Exchanges

On the other hand, a single entity does not control decentralized exchanges. This type of exchange is often more volatile since there’s no centralized authority involved, and every transaction is peer-to-peer. In this case, the seller sets the price, and the buyer agrees.

Decentralized exchanges provide investors with the platform, but their involvement ends there. A decentralized exchange does not monitor any trading. These exchanges also don’t offer fiat payouts. For an investor to cash out, their crypto must be withdrawn into a personally controlled wallet, allowing them to remove it as money.

The main benefit of decentralized exchanges is that traders don’t have to wait for other exchanges to decrease prices to benefit from a lower price. Because these transactions are peer-to-peer, it’s a one-and-done deal that happens immediately. Trades can happen at any time, and the prices are often fairer since no centralized entity controls the exchange.

Three Types of Crypto Arbitrage Trading Strategies

In crypto, several types of arbitrage can be used to conduct trades. Each has its advantages and disadvantages for traders, but understanding how each arbitrage works will set you up for success by allowing you to use any method when it’s most profitable.

Spatial Arbitrage

A spatial arbitrage opportunity arises when the price of an asset differs across exchanges.

For example, assume that Bitcoin is trading for $11,600 on Exchange A and $12,000 on Exchange B. If you buy one Bitcoin on Exchange A and immediately sell it on Exchange B at that higher price, you earn a profit of $400.

Spatial Arbitrage Without Transferring

To avoid the risks of transferring cryptocurrency between exchanges, you can use a service that allows you to trade on multiple exchanges simultaneously, a method called “spatial arbitrage without transferring.”

An example is if Bitcoin trades for $11,600 on Exchange A and $12,000 on Exchange B. You could simultaneously place a buy order on Exchange A and a sell order on Exchange B.

The benefit of spatial arbitrage without transferring is that buyers can set a limit for the service to automatically execute the trade once the price of your crypto reaches the desired level.

However, if the price of your currency never reaches the limit set, the service won’t complete the transaction.

Triangular Arbitrage

Triangular arbitrage is a type of arbitrage that takes advantage of the price discrepancies of three different assets. It’s also referred to as “cross-currency arbitrage.”

With this type of arbitrage, traders look to exploit the differences in the prices of three different assets.

Triangular arbitrage can be conducted in two approaches: Buy-Buy-Sell or Buy-Sell-Sell.

We’ll use the three largest cryptocurrencies on the market, Bitcoin, Ethereum, and Tether, as an example. With the Buy-Buy-Sell method, an investor would initially buy Bitcoin with Tether, then buy Ethereum with Bitcoin, then turn around and sell Ethereum for Tether.

With the Buy-Buy-Sell approach, the hope is to leverage two purchases and one sale to result in a profit by comparing the final sale with the initial investment.

The Buy-Sell-Sell approach works similarly but by leveraging two sales after one purchase.

This type of arbitrage is unique because it allows traders to take advantage of price differences in assets that are not directly traded against each other. Unfortunately, this also makes triangular arbitrage more complex than other types of arbitrage.

Two Simple Strategies To Arbitrage Cryptocurrencies

It’s important to remember that not all cryptos are created equal. Some are more volatile than others, where their prices fluctuate more, providing more arbitrage opportunities but also more risks.

Here are two simple ways you can start to profit from crypto arbitrage trading:

Don’t Guess – Use Arbitrage Software

Finding crypto arbitrage opportunities in today’s market can be challenging. There are a lot of assets and exchanges to keep track of, and the market is constantly changing.

One way to make things easier is to use arbitrage software. This type of software monitors the markets and finds arbitrage opportunities for you. All you need to do is enter your trade parameters, and the software will do the rest.

Most arbitrage software is subscription-based, and a monthly fee to use the software will be required. The free options are not always recommended due to software glitches and malfunctions.

There are a lot of scams out there, so it’s best to be careful when choosing arbitrage software. Below are a few tips to help you choose the best software to arbitrage crypto:

  • Check the reviews: Before you subscribe to any software, check the reviews. There are a lot of review sites that you can use, such as TrustPilot and Gartner.
  • Check the terms and conditions: The terms and conditions should be clear and concise. They shouldn’t contain clauses that allow the company to alter the terms at any time.
  • Ask in crypto forums: There are a lot of crypto forums where you can ask the trading community for recommendations. Once you have several options, you can check the reviews and websites to narrow your choices.

Focus On Less Popular Cryptocurrencies

Popular is not always better, which also goes for cryptocurrency assets. The more competition for assets there is, the higher the prices rise.

Instead, an option is to focus on less popular cryptocurrencies. These assets often have lower trading volumes, which means more arbitrage opportunities.

To find these opportunities, either monitor the markets closely or use various tools, such as CoinMarketCap, to do the work for you. Once you have found a few assets, you can start monitoring the prices on different exchanges.

Advantages and Disadvantages of Crypto Arbitrage Trading

Every story has two sides, and crypto trading is no different. Below we outline the pros and cons of arbitrage trading, so you can fully assess whether or not this strategy best suits you.

Pros of Crypto Arbitrage Trading

If you’re new to crypto trading, arbitrage has a few key benefits over higher-risk forms of trading. Arbitrage trading is considered a great starting point for entering the trading world for the following reasons:

Fast Profit

Unlike stocks or Forex, the cryptocurrency market never sleeps. There are always opportunities for trading, 24 hours a day, seven days a week.

Arbitrage is a fast way to make money. You can complete transactions within minutes and earn profits instantaneously.

Wide Range of Opportunities

There are many arbitrage opportunities with thousands of crypto assets and hundreds of exchanges from which to choose.

The cryptocurrency market is still in its early stages of development, and new exchanges and assets are constantly being created. These developments provide more opportunities for those looking to profit from the arbitrage process.

Cryptocurrencies are Incredibly Volatile

The cryptocurrency market’s volatility is arbitrage trading’s most significant advantage. The price of cryptocurrencies can fluctuate wildly, providing opportunities for those who are quick to take advantage of them.

The more drastic the market change, the higher the potential for large profits.

Cons of Crypto Arbitrage

Since so much of the crypto market is in its infancy, many people seek to exploit it. It’s important to know what to look for to avoid getting caught in the snags of the market and losing any invested capital.

Similar Sounding Coins

There are a lot of coins with similar-sounding names. This might sound silly, but it can lead to confusion and mistakes amid rapid trading.

For instance, $HNC (HellenicCoin) and $HNC (Huncoin) are two different coins. Because of their same abbreviation, or the ticker symbol, they could easily be confused with one another when making a trade.

Always double-check the ticker symbol and the full names of the coins you’re trading to ensure you’re purchasing and selling the right one. You could lose everything in one wrong trade because of a simple mistake.

Scam Coins and Pump & Dump Schemes

There are many scams in cryptocurrency. There are also just as many pump-and-dump schemes, which can lead to considerable losses if you aren’t careful.

A pump and dump is a community hoax where a group of traders convinces other traders to buy into the same crypto. This essentially “pumps” the price up. As soon as the insiders see the price skyrocket, they sell all their shares and plummet the stock price, potentially causing the convinced investors to lose a significant amount of money.

Always research a currency before investing to know what you are doing.

Is Crypto Arbitrage a Low-Risk Strategy?

Any kind of trading is risky; however, some trades are riskier than others. Arbitrage trading is considered a lower-risk trading method for several reasons.

Crypto arbitrage traders are not exposed to the same risks as day traders who attempt to predict the market’s short-term direction. This is because arbitrage traders take advantage of price differences in assets already trading at a discount or premium.

Once arbitrage opportunities appear, traders can buy the asset on one exchange and then quickly sell it on another platform for a profit. There’s no need to analyze market trends or predict price movements. Executing the trade is the only thing to do.

Unlike day traders, who often hold their positions for days or weeks, crypto arbitrage traders can exit the market within minutes or hours, depending on the length of the arbitrage opportunity.

Another reason crypto arbitrage is a lower-risk strategy is that investors only need a small amount of capital to begin. You can start arbitrage trading as soon as there is enough capital to cover the spread of assets and associated fees.

What Are the Risks of Crypto Arbitrage?

Even though crypto arbitrage is a lower-risk trading strategy, there are always risks in a financial market. Some of these risks include:

  • The spread could widen suddenly: The price difference between two assets can widen or narrow quickly. This is especially true in volatile markets such as cryptocurrency. If the spread widens beyond the trader’s profit margin, they will ultimately inherit a loss.
  • The trade could get stuck: If the price of the asset you’re trying to sell is lower than the price you bought, you will be stuck in the trade. You will have to wait for the price to increase before you exit the market.
  • You could miss out on other opportunities: While you’re waiting for the cost of an asset to rise so you can leave the market, the price of another asset could drop. This would create a new arbitrage opportunity you can’t take advantage of.

Things to Consider Before Beginning Arbitrage Trading

While crypto arbitrage is a relatively low-risk form of trading, there are a few details you’ll want to consider before beginning arbitrage trading. Remember that these aren’t cons or risks of arbitrage trading but essential information that should be accounted for in trying to figure out if this is the suitable trading method for you.

Money-laundering Rules and Restrictions

Many exchanges have strict laundering rules and restrictions to protect against their services being used for money laundering.

You may need to go through a lengthy verification process to be able to trade on some exchanges. Some jurisdictions have also introduced strict KYC (Know Your Customer) requirements. The KYC requirements include having investors upload personal data about them, including a scan of their picture ID and a current photo that must be taken within a short timeframe.

It can be a significant deterrent by causing money-launders to attempt to find alternative routes and avoid the KYC requirements to continue their illegal activity.


Exchanges typically charge fees for each trade. Without these fees, exchanges would be required to find an alternative solution to stay afloat. Unfortunately for the buyers, these fees can reduce your profits, especially if you only made a small profit on each transaction.

Some exchanges also charge withdrawal fees. These fees occur every time you withdraw earnings from trades and transfer them into a personal bank account.

Slower Transactions

Even though cryptocurrency arbitrage takes seconds or minutes to complete, the time for the transaction to be processed could take longer. You might sell with a gain of $1000, but after the time it took the server and internet to fully process your transaction, your profit dropped to $800.

This is because blockchain networks can get congested. Every second counts in arbitrage trading, and you lose out on profits when the server lags.


Arbitrage is becoming increasingly popular as more people learn about it. Competition is getting more challenging, and there are fewer opportunities to profit from this process. But with the cryptocurrency world expanding daily and more coins are created, more opportunities will arise.

Crypto arbitrage is legal in the United States. Some counties and states have restrictions or ban the use of specific exchanges. It’s vital to research local laws regarding cryptocurrency and crypto trading to avoid any penalties.

In most countries, trading is seen as an economic advancement with the hopes that others will wish to take advantage of the price differences, eventually leading to growth and balance across the markets.

Start Trading Cryptocurrencies On My Digital Money

Arbitrage is a great way to make money in the cryptocurrency world. Not only can you make a profit, but you can also do it without putting a lot of capital upfront.

Remember that bigger is not always better. Look for opportunities in smaller cryptos and keep wary of the risks involved, and you’ll be set for success.

If you’re patient and have the start-up capital required, crypto arbitrage could be an excellent opportunity to reap significant gains.

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