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Understanding cryptocurrency arbitrage and arbitrage exchange
An arbitrage exchange is generally a trading strategy which is relied on the difference in the price of the same assets on different stock exchanges. Arbitrage possibilities open up in case of price divergence obtained via a sales chain through intermediate assets. In this situation, the gap between prices accumulates and becomes considerable, which in the cryptocurrency market currently reaches a few percentage (from 1 to 3%). This type of arbitrage opportunities only exist for seconds, and so you need to constantly seek to find opportunities so to implement them whenever it’s possible: this is for a trader who frequently uses currency arbitrage strategies. Thus, a trader mainly derives his income from differences in the exchange rate of assets.
Basically, you buy with low price and sell with a high or higher one. You might think cryptocurrency arbitrage is easy, but that’s just in theory. In practice, the concept is sometimes a complex one. There are great risks one can take when trading cryptocurrencies or making arbitrage exchanges, but as every business, where there no risk, there is no significant gain.
While the cryptocurrency trade is currently still young, its market space continue to spread worldwide and there sometimes can be impressive price differences between some exchanges. Cryptocurrency arbitrage gives you the possibility to take advantage of these price differences by buying crypto in a low price market and selling it immediately to another high price market.
Arbitrage is simply the simultaneous purchase and sale of an asset in different markets to take advantage of the price difference between these markets. In a very simplified example of the works of arbitration cryptocurrency, you can look for a specific coin, which is cheaper on exchange market A than on market B. The exchange coin you buy the exchange A, you sell it at a higher price on the Exchange B and then collect the difference.
The notion of arbitrage is not very new, but has existed for many years on foreign exchange markets, bonds, stocks and currencies. Nonetheless, the advancement of quantitative systems put in place to identify price differences and execute transactions on separate markets made arbitrage operations out of reach of most of the traders at retail level.
Whether it is a classic arbitrage or a crypto arbitrage, the fundamental arbitrage mechanism remains the same. But because of the very high volatility of Bitcoin, the danger associated with trading with crypto are considerably higher. The bitcoin rally in April 2018 still proves that bitcoin can easily be manipulated, especially when a stakeholder or an actor has sufficient funds. We remember how in November 2017 speculations went weird: there was an incredible increase, but it was followed by an immediate fall. Not leaving out a lot less liquid coins. There is also an uncertainty of closing a stock exchange operations because for the moment, there is no integration with whatever professional trading interface, talk less of sufficient liquidity. Now, seeking for a stable crypto-exchange turns to be a challenge.
Note that arbitrage exchange development cryptocurrency is the equal buying and even selling of the same financial instruments with the sole aim to make profits. In order for this equal exchange to be successful, you need an electronic mechanism or else it becomes impossible to operate. This is so because, since you cannot sell what you do not even have; leg risk becomes a part of the transaction. Leg risks are the two legs involve in a financial transaction which are the act of buying and selling of these financial instruments. Even though these instruments can only be seconds apart, price fluctuation can occur.
What are the huddles one can find?
With the process of implementation of arbitration strategies in the cryptography market, it is certain that some involve an implementation technique and are programmed to obtain a positive result. Some of them are:
1. Having your deposits on many different leading exchanges (the more you cover sites, the better)
2. The availability of a specialized software monitoring arbitration opportunities.
3. Have a specific hardware (especially well placed and configured server, with a minimum ping) and software integrating the exchanges that interact with them.
All transactions must be done with a minimum of delay. In addition, the risk of failures, technical errors and delays must be minimized, which could result in losing the benefit of the arbitrage transaction.
Platforms to do arbitrage exchange development
Some platforms will aggregate liquidity, plus implement strategies in arbitration in a single framework, for instance B2BX, CT Arbitration, Stex, etc.
But this is a problem which is currently being addressed by several teams. Among them is B2BX, which ran a successful ICO at the end of 2017. Nevertheless, it is aimed at brokerages, institutional investors and liquidity providers, and most of the traders will not have access. Another solution adopted now in Japan is the Japanese Liquid project with an existing exchange license coming from the Japanese authorities. One of the goals of the project is to give liquidity to the cryptocurrency foreign exchange market and to create a global order book.
We work on the most efficient mechanism that can integrate cryptographic exchanges into a single interface with the automated arbitration mechanism. The integration of cryptocurrency exchanges with the automated arbitrage system will provide a revolutionary high-end trading terminal for traders with the opportunity to realize additional profits.
A trader registers on the platform to begin processing transactions with the amount he/she wants. By deploying a search algorithm of the most favorable exchange rates via multiple exchanges, the platform offers the possibility to buy cryptocurrency at a lower price rate and sell at a higher price. Any purchase of transaction with a negotiable crypto-asset will be done at a good and favorable rate, meanwhile the fees charged by the platform will be lower than those normally charged by the cryptocurrency exchanges.
On the other hand, good chances in arbitrage do exist in the cryptocurrency world. Here, a rapid rise in trading volume and anomalies between exchanges causes the differences in price to arise. Larger trade with higher liquidity actually determines the prices of the rest of the market, and the smaller exchanges follow the prices set by their larger counterparts. However, smaller exchanges do not immediately tread on the heels of the fixed prices, that is, when arbitrage opportunities arise.
