Arbitrage trading with cryptocurrencies: How traders find their price spots

Arbitrage trading fundamentally capitalizes on price gaps. In essence, arbitrage is the difference between the same asset at two different places, times, or exchanges. Throughout this article, we'll thoroughly explain how arbitrage trading works and, moreover, how traders identify profitable opportunities.

Different types of arbitrage trading

As previously mentioned, arbitrage trading can occur in various forms. Given that CoinAPI specializes in cryptocurrency services, we'll consequently focus primarily on crypto arbitrage.

Inter-exchange arbitrage trading

The trader spots a large gap on different exchanges. For example, Bitcoin costs much more at exchange A than it costs at exchange B. By buying it at exchange B and selling it at exchange A and considering the trading fees, the trader can profit.

Opportunity for arbitrage: 200 USD in price difference

Intra-exchange arbitrage trading

When another cryptocurrency is experiencing high volatility, there might be a gap in the exchange rate e.g. a fiat currency. The difference between inter-exchange trading and inter-exchange trading is that the trade is performed on the same exchange, and only the currencies are different.

For example, one Bitcoin could cost 16 ETH. The price in USD for Bitcoin is 3,000 and for ETH 200. Supposing that the trader has 16 ETH in his account, he could now do the following transaction:

• He starts with having 16 ETH.
• Change 16 ETH into 3,200 USD (now he has 3,200 USD) (ETH -> USD)
• Buy 1 Bitcoin for 3,000 USD of the 3,200 (now he has 1 Bitcoin and 200 USD) (USD -> BTC)
• Change the 1 Bitcoin back to 16 ETH (BTC -> ETH)

Now the trader has 16 ETH (the same amount he started his trade with) but an additional 200 USD of profit.

Opportunity for arbitrage: 200 USD in price difference

Combination of different arbitrage trading strategies

Traders sometimes combine both approaches described above. Spotting multiple spreads between exchanges and currencies could, therefore, leverage a higher potential within one single trade. Since trading fees have to be considered, combining two spreads in one arbitrage trade can increase profits. In this case, the trader not only compares the prices against different currencies (as in intra-exchange trading) but also the differences considering other exchanges' price levels.

Opportunity for arbitrage: 400 USD in price difference (200 USD between exchange A and B and another 200 USD for the spread between ETH and BTC equivalent to USD)

How do traders find arbitrage opportunities?

Traders are focusing on fast deals and efficient, risk-lowering calculations. Therefore, they usually build their strategies upon Bots or at least use tools that support them by performing real-time calculations. It is very important to have accurate and new data. This is possible thanks to specialized platforms like CoinAPI that provide a single Market Data API to extract data from a bunch of crypto exchanges. Hence, traders can easily access the latest market data and base their arbitrage calculations on them. It is possible to manually process the data as well as integrate it into a Bot with the smart API.

How CoinAPI streamlines arbitrage trading

CoinAPI provides professional data services for traders and can be a powerful tool for arbitrage traders. Here's how:

Real-time data

Our API delivers real-time data from multiple cryptocurrency exchanges, enabling you to identify arbitrage opportunities as they arise.

Data standardization

When you use data from many exchanges you will notice some differences in naming or symbols. That's why we take care of data standardization across all exchanges, making it easier for you to compare prices and spot arbitrage opportunities.

Reliable infrastructure

Our robust system ensures continuous data access, minimizing downtime and potential missed opportunities. It can provide up to 8400 market data updates per second for traders to find arbitrage opportunities and monitor the market.

Comprehensive coverage

We offer data on a wide range of cryptocurrencies and pairs, thereby expanding your arbitrage possibilities. You can explore all available exchanges, cryptocurrencies, and symbols on our Metadata Explorer.

Have more questions about our arbitrage trading solution? Don't hesitate to contact us!