DeFi Arbitrage - Exploring Different Cryptocurrency Trading Strategies


Is arbitrage a good crypto strategy or a waste of time and effort? Here are all the tips that will enable you to take a conscious step!


The process of buying and selling valuable assets to make risk-free profits by taking advantage of the formation of different prices in different markets is called arbitrage. The basic logic is to take advantage of the fact that the product is traded at different prices in the markets. It is based on the idea of buying the same product in the market where it is sold at a low price and selling it in the market where it is traded at a high price. This method is frequently used in the cryptocurrency ecosystem. As it is known, the price of the same coin can be different in every cryptocurrency exchange in the world. If the arbitrageur can sell the coin he bought at the right time in a different exchange at a high price, he will make a profit.


Is arbitrage profitable?

Theoretically yes. However, in order to make a profit in practice, it is necessary to follow the markets effectively. In order to apply the method, it is necessary to follow the values of the asset targeted to be invested in different markets moment by moment. Timing is crucial to buy from the lowest price market and sell to the higher price market.

While doing this manually is possible during periods of high volatility, it may not always happen. Generally, there are software and algorithms specially developed for this type of operation. Although by definition it seems easy to implement, the arbitrage method is actually a difficult process. It requires regular monitoring of the market. Inexperienced traders are likely to lose money at times while waiting for profits.


Bitcoin arbitrage

It is easier for individual investors with relatively smaller budgets to arbitrage in the cryptocurrency markets than it is for them to arbitrage in traditional markets. Arbitrage in the cryptocurrency ecosystem is easier, but riskier, compared to traditional markets.

As it is known, the cryptocurrency ecosystem is a market with high volatility, that is, price volatility. It is a very active market… It is easy and inexpensive to trade from anywhere in the world, but it is difficult to catch prices at the targeted levels since the transactions do not take place in real-time. 


Arbitrage Bots – Tips to Consider

Bot trading does not mean that you no longer have to do anything else and it will now perfectly handle your wallet. Instead, you need to poke him occasionally and show him how the 'human element' works. Now you have to manually step in from time to time and intervene in the bot trading mechanism when it starts to panic or make too many wrong decisions.

Another very important tip is to apply a 'failsafe' or a kill switch on the bot which automatically triggers when the coin reaches a certain threshold. These breakout safes are known as “Stop Loss” and “Take Profit” orders. When a trade exceeds the threshold you define, the trade will automatically stop.


How It Works – Arbitrage Bots

When you use any arbitrage bot, it constantly examines different marketplaces for different crypto and detects inconsistencies in prices. If the bot finds such a coin, it takes the coin from the exchange with the lower purchase price and then sells it, preferably on another exchange offering the highest selling price. The profit you earn is known as the crypto 'spread', i.e. the difference between the selling price and the purchase price. You can set a limit on how many coins you can buy at once. If you don't, the bot will most likely consume all your budgets in one go and pose a huge risk in the process.


Crypto bots generally do not trust cryptocurrency trajectories and so there is little or no danger from sudden crypto market fluctuations. As we saw in the second quarter of 2021, crypto arbitrage, especially with bots, becomes very lucrative in a falling market. However, it is important to note that subscribing to bot programs often comes with a user fee that can be quite high. There are also free bots, but their reliability is questionable. I recommend creating your own bot and improving it as you progress, increasing how protected you are with the experience.


DeFi Arbitrage – An Opportunity for Everyone?

DeFi arbitrage has great potential, especially when coupled with the right bot. It can be a lucrative source of passive income for investors with little risk and minimal effort. Software development skills can also go a long way in developing a bot here, which further increases the chances of success. You can also access a large number of crypto pairs with the help of flash loans.


However, the opportunity also brings with it a saturated market, meaning that arbitrage opportunities for the day trader can be almost zero. Fiat stability also means that unless you have a very large portfolio, expanding into different markets means a lot of work for a marginal profit. What is your opinion on arbitrage? Do you think this is a good DeFi opportunity? Is it the right choice for beginners or should it be left to the experts? Or should experts avoid it altogether, too? For more, contact us now.


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