What is Cryptocurrency Arbitrage? It is the process of buying one currency and selling another one off at the same time. In this particular market the value of one currency acts as the collateral on which an investment is made by traders. A few examples of such exchanges are the New York Stock Exchange, the London Metal Market, the Swiss Exchange, and the Australian Securities Exchange. In a way, this form of business can be described as a cross between a stock market and a Forex market.
To better explain what is Cryptocurrency Arbitrage we need to understand what is involved in the trade. To begin with, there are two possible outcomes in this kind of trade: either the trader will gain profit by purchasing the lesser amount of the token and sell it for the higher price or the trader will lose some profit by selling the lesser amount of the token and buying the higher price. This process goes on continuously until the time when both the buyers and sellers reach a dead end. When this happens, the investor can either keep his money and wait for the next transaction in order to gain profit from it or sell his tokens immediately and eliminate the loss he incurred. The latter option is called Cryptocurrency Brokerage and is usually done by high profile brokers who have relationships with major exchanges.
This kind of transaction has been seen around the globe. For example, in the case of the New York Stock Exchange, an investor may sell one of their accounts for the purpose of buying the stock at a lower price and reselling it at the higher price. Similarly, in the case of the London Metal Market, an investor may buy the Euro for a lower price and resell it for a higher price. In the Australian Securities Exchange case, an investor may buy the Eurus for a lower price and sell it for a higher price. All of these transactions take place because of the existence of Cryptocurrency Arbitrage.
However, it is very hard to identify which deals are best under which circumstances since there are so many opportunities. Most of the times, it is the investors’ mistake that they do not pay close attention to this aspect. The market for Cryptocurrencies is largely unregulated and therefore there are numerous opportunities that are not made aware to the investors. This is one of the main reasons why many people are investing in Cryptocurrencies without any knowledge about what is Cryptocurrency Arbitrage. Therefore, it is important for you as a budding investor to become acquainted with these opportunities if you want to earn profits from them.
There are two main factors that affect the rate of Cryptocurrency Arbitrage and they are liquidity factors. The liquidity of the market is actually measured by its ability to provide for smooth trade procedures. When a broker tries to sell his asset in the cryptocoin exchange, he will not have enough supply to actually fill his order. This means that he would have to look for more buyers and sellers or partners in the market, and this could result to a quick and fast turnover of his broker account.
On the other hand, if you are trying to get your broker to sell your asset in the cryptocoin exchange, you are most likely going to have to pay for his services upfront, otherwise, he will not be able to earn any profit from this transaction. If he cannot earn any profit, then he cannot stay in business, because no trader wants to pay for any trading fees or withdrawal fees, right? Therefore, if he is unable to make any profit, then he is not going to be able to sustain himself in business, and that is going to be bad news for him. Therefore, it is very important for you to take note of both the factors and know how they affect the arbitrage trade rates.
One of the major things that affect the rate of Cryptocurrency Arbitrage is the transparency of the underlying asset’s market. There are a lot of cases wherein the market is not transparent enough to render the arbitrage calculations accurate. As a trader, you should know if the market is fairly transparent or not so that you will not be prone to falling victim to some fraud. There are times when traders feel that their accounts were not cleared properly because of reasons that are hard to understand, therefore, this could lead to unnecessary complications that can be avoided by simply knowing your broker well.
The second factor that affects the rate of Cryptocurrency Arbitrage is the speed of the transaction. There are some traders who believe that the faster the transaction, the better it is, and obviously, this is not always true. For instance, there are cases wherein an asset is bought quickly and the rate of Cryptocurrency Arbitrage is high, but then, the next day, the opposite occurs. This means that if the asset was bought quickly, the next day the value of the same asset decreases. Therefore, if you want to do business in fast-changing markets, you need to find brokers that can provide you with fast transaction, because this is something that you need if you are into fast changing markets such as Cryptocurrency Arbitrage.
TradingGator is a trading review website where you can read about everything from CFD signals to the best European forex brokers. Find the top trading platforms and courses to become lazer sharp in your execution. We even cover the best forex affiliate programs and show you step-by-step how to get started. TradingGator - For Traders, By Traders!