Crypto markets are open throughout the day. Investors and traders are free to execute transactions any time of the day. You may have decided to purchase a particular cryptocurrency and hold it. Certainly, you have expectations that its price will soar as the coin continues to appreciate. However, such a decision may be risky. You will experience losses if the price plunges.
Instead spread your investment and purchase different coins that are likely to increase in value. The value of the assets will not fall simultaneously. Unlike when you invest only in one coin, you will not experience much loss if the value of any of the coins depreciates. When they appreciate, you will make profits over time.
Table of Contents
Crypto trading involves speculating the price movement of the coins to determine the right time to make purchases or sales. You can trade coins on exchanges or through a CFD trading account. On exchanges, you need to create an account to trade cryptocurrencies. You will take ownership of the crypto assets you purchased and store them in your wallet. The coins will remain in the wallet until when you are ready for sales.
Contrarily, the CFD (Contract for Difference) trading account does not allow you ownership of the crypto assets. You only need a small deposit, the margin, to trade cryptocurrencies. When you think that the value of a coin will increase, you can buy it. Likewise, you can sell a crypto asset when you speculate that its price will fall. Your profit depends on the stake you have in each trade executed.
The differences in the price of a coin across different exchanges provide an opportunity to make a profit from crypto trading. You can buy the particular crypto asset at a lower price from a market and sell it higher on another exchange. The price differences of a coin across exchanges result from delays in updating the market prices and the liquidity of the cryptocurrency.
The crypto arbitrage trading strategy helps you to simultaneously buy and sell a coin to exploit its price differences on exchanges. However, other crypto trading strategies take advantage of price fluctuations over time.
Types Of Crypto Arbitrage
There are several types of crypto arbitrage. Each type works a bit differently from the other.
Spatial crypto arbitrage
It involves the purchase of a coin on an exchange and its immediate sale on another at a higher price. However, you may miss the spread if a delay occurs during the transfer to the second exchange. You also have to pay a transfer fee.
This type of arbitrage allows you to transfer three different coins to the same exchange for sale. However, you have to compare their prices to make sure that the transfer will be profitable.
You can buy an underpriced coin and sell it overpriced at another exchange at the same time. You may buy back the sold crypto when the price becomes the same on both exchanges.
When successfully applied, you can make money using the crypto arbitrage trading strategy. Make sure you carefully compare the prices of an asset before you use the strategy.