Meta-Description: Arbitrage Trading is one of the ways you can make money as a crypto

enthusiast. Read more if you want to know about arbitrage trading and how to go about it.

What is Arbitrage Trading?: All you need to know

Image source: Pixabay

Both in the bull and the bear market, crypto arbitrage trading has remained one of the best ways
both newbie and experienced crypto traders can make money. It does not require many complex
theories or methods; with your device and an internet connection, you can easily carry out crypto
arbitrage trading.

Being simple doesn't mean that you won't have to learn about how it works and the types of
crypto arbitrage trading. Also, you need to learn strategies that will help you profit massively
from the process. Below is everything you need to learn about arbitrage trading, the different
types, and how to go about each one of them.

What is Arbitrage Trading?

Arbitrage Trading is quite simple to understand, and it is just the monitoring of prices between
different crypto exchanges and then taking advantage of the price difference.

I will use an illustration to help you better understand what is meant by monitoring and taking
advantage of price differences between two or more exchanges.

Assuming there are two exchanges called A and B, the first thing in crypto arbitrage trading is to
monitor the price of the crypto that will be involved in the arbitrage trade. Let's say you are
going to trade Bitcoin between the two exchanges, you will have to monitor the price of Bitcoin
between the two exchanges closely.

If the price of Bitcoin in exchange A is $20,000 and the price in exchange B is $20,500, that
means you will have to trade the Bitcoin you have OK exchange A to Exchange B. So how do
you do it, and how much profit are you going to make?

Selling the total Bitcoin you have to exchange B means you will sell it to them at another price
different from exchange A's. So if you have Bitcoin worth $20,000 in exchange and you sell it to
exchange B at their rate of $20,500, you will make a profit of $500.

This is just an illustration to demonstrate what is arbitrage trading; the price of Bitcoin might be
higher or lower at the time of writing.
Types of Crypto Arbitrage Trading
There are different ways you can engage in crypto arbitrage trading and still make a profit, below
are the major types of arbitrage trading.

● Pure Spot Arbitrage Trading

This is one of the most common types of arbitrage trading used by amateurs because of how
simple it can be. The majority of what is involved is just to find a crypto exchange with a lower
cryptocurrency exchange rate, buy from them, and then sell it to another crypto exchange.

● Positional arbitrage Trading

Among other types of arbitrage trading, positional arbitrage trading is similar to pure spot
arbitrage trading, although there are differences. The major difference is that you realize a profit
with this arbitrage trading by opening positions on different exchanges and then closing them
once it has converged enough for you to make a profit.

● Interest Rate Arbitrage Trading

A crypto enthusiast should know that they are crypto exchanges that facilitate the lending and
borrowing of cryptocurrencies to users. Therefore, crypto traders can use the opportunities
involved with this process to make a profit with arbitrage trading. Another thing to know about
this type of arbitrage trading is that it does not involve many risks. All you will have to do is go
to an exchange that borrows funds from users at a lower rate and then lends those funds to an
exchange whose rate is higher.

What Influences Arbitrage Opportunities?

Arbitrage trading opportunities don't just come out of the blues, certain things influence when
those opportunities present themselves and how they present themselves.
 ● Transfer and transaction costs
Transfer and transaction costs are a major determinant of how a trader should go about crypto
arbitrage trading and the strategies they will employ. You will have to note that the majority of
the opportunities that come with these transaction costs are meant for those who are whales in
the market.

In a crypto exchange, investors producing high trade volumes have lower transfer and transaction
costs, unlike those with minimal trade volumes. Therefore, they can capitalize on that to carry
out different types of crypto arbitrage trades on the exchange.

● Local Restrictions on Fiat

Local restrictions are another factor that determines the definition of what is arbitrage trading
and how you should go about it. Some countries in the world are known for blocking the outflow
of fiat currency out of the country, leading to reshuffled demand and supply in exchanges. One
of the major countries known for this is South Korea; many people usually capitalize on this to
make money.

So traders can make money with this situation by buying cryptocurrencies such as Bitcoin from
an exchange outside of South Korea and then selling them to exchanges that reside in South
Korea. The reason behind this is that exchanges in other parts of the world have lower prices for
cryptocurrencies than exchanges that are located in South Korea.

Wrapping Up
Crypto arbitrage trading is the act of capitalizing on the price differences that are found in
different exchanges and then using them to make money. As a crypto trader, knowing what is
arbitrage trading, its types, and how to make money using the methods mentioned above is very
important.