What is Arbitrage?

Basic information

There are many ways to make a profit with cryptocurrencies. One of these is ‘arbitrage’. This involves buying one cryptocurrency on exchange X and then selling it on exchange Y, hopefully making money on the different prices of the cryptocurrency on the two exchanges.

An arbitrage example: you decide to buy 1 BTC on Coinbase, where it is worth USD 50,000. Immediately afterwards, you sell it on Binance, where it is worth USD 51,000. Your theoretical profit is USD 1,000.

Although the above situation looks nice on paper, in reality other factors need to be considered. Each exchange is charged as a cryptocurrency sale and purchase. The transaction time can also be a certain risk, as because of its high volatility the price of the cryptocurrency can change dramatically by the time you resell it. Finding the right cryptocurrency and the right moment to trade can also be a puzzle that many people have so far failed to solve. Arbitrage has thus ended up being a nightmare for them rather than a dream of easy earnings come true.

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