Arbitration is a simple and clear way to make money.

The difference in quotes of the same asset on different trading platforms makes it possible to make a profit through arbitrage transactions

Arbitrage transactions are the purchase and sale of the same asset in order to make a profit due to the difference between the sale and purchase prices. Arbitration can be temporaland spatial. 

Time arbitrageoccurs on the same trading platform, and the price difference is achieved by making transactions in different directions at different points in time. Regular trading is time arbitrage. 

Spatial arbitrage is the purchase and sale of an asset on different trading platforms, where the estimated value of the asset differs significantly from each other. 

The essence of this operation can be clearly shown with one simple example:

On October 24, 2018, at the same point in time, the price of Bitcoin on the Bitstamp exchange was 6473.00 USD, and on the Binance exchange - 6630.00 USDT. The difference was about $157.00. 

Approximately this difference persisted for quite a long period of time. Sometimes the price gap reached an even greater value. Schematically, the arbitration process looks like this. We buy 1 BTC on Bitstamp, transfer it to Binance and sell it for $157 more. We repeat the operation as long as it makes a profit. Everything looks very clear. 

But in reality, not everything is so simple. 

If we talk about this specific example, then it is not suitable for arbitrage operations at all.

Let's start with the fact that Bitcoin transactions are not the fastest in the world. It is advisable to choose crypto-assets for which transactions take place almost instantly and, even better, for them to be free or for the cost of transfer to be very, very low. This, of course, is not a sufficient condition for earning money. 

Obviously, the main condition for making a profit is the presence of a difference in price. And the higher it is, the greater the income. But not all the difference will end up as profit. You will need to subtract the commissions of one and the second exchange from the amount of income. 

What commissions do we need to take into account? Each exchange has its own tariffs for the corresponding transactions. Some exchange remuneration amounts depend not only on the amount, but also on the type of asset with which the transaction is carried out.. Let's try to estimate the approximate amount of expenses for one arbitrage operation:

- Commission for the purchase of an asset (from 0.075% to 0.25%);
- Commission for withdrawing funds from a trading account (from 1% to 5%);
- Commission for a transaction (depending on the crypto asset);
- Commission for depositing funds on another exchange (usually 0%);
- Commission for sale (from 0.075% to 0.25%);
- Commission for withdrawal of profit (from 1% to 5%). 

It turns out that commission expenses, according to the most conservative estimates, can range from 3% to 10%. It is immediately clear that the upper limit of 10% commission eliminates any point in engaging in arbitrage. If you select exchanges with minimal commissions and crypto assets with no or very low transfer fees, then an acceptable profit can be obtained if the difference between the cost of the same asset on different exchanges is at least 8-9 percent. 

As a rule, highly liquid cryptocurrencies have a relatively small difference in price on different trading platforms. A significant difference in valuation occurs for assets that are not included in the top list in terms of capitalization and liquidity.  

To quickly and effectively select those suitable for inter-exchange arbitrage, special software bots are used that track and compare prices for all assets included in the listing of specified trading platforms. Some bots can automatically calculate the final size of an arbitration transaction, taking into account all commissions. 

Even with very fast transactions and a high level of automation, arbitrage transactions have certain risks. They are mainly associated with exchange rate changes during the transfer of funds from one exchange to another. In addition, there is a problem with the liquidity of certain assets that cannot be sold very quickly at a price quoted on the stock exchange in a given volume. As a result, the entire arbitration operation may be at risk of failure. 

All these risks need to be taken into account in advance and decide whether they are acceptable to you.

In addition to inter-exchange arbitrage transactions, there are intra-exchange transactions. Their essence is to capture the discrepancy in the value of several cryptocurrencies.. The so-called intra-exchange triangle. We will tell you more about this and some other arbitration schemes in our next publications.