The exchange of crypto-currencies is a platform for trading and exchanging one digital money for others or for different world currencies (USD, EUR, RUR, CNY). In addition to the cloud and mining of its equipment, which are the original way to create crypto-currencies, exchanges are the only option for their receipt. In addition, only with the help of exchanges can they be exchanged for real money.
The division of the entire list of exchanges can be made conditionally according to one of the most important criteria:
- Exchanges, where bitcoins and part of the basic forks can be exchanged for national, world currencies (fiat money).
- Exchanges on which trade exclusively between bitcoin and forks and the exchange of some crypto-currencies for others.
Forks called digital money, derived from the primary bitcoin. Many forks can only be traded on certain exchanges.
Quick material navigation:
- Graphs of the course of cryptocurrency
- Orders for purchase and sale
- The analysis of the market on a glass of quotations
- Separation of orders into passive and aggressive
- Levels of resistance and support for the price
- History of completed deals
- Use of trading volume in the analysis
- Differences between the exchange of crypto currency from the stock and currency markets
- Important rules for the exchange crypto-currency
- Classic Arbitrage 2018 (simple)
- Static arbitrage earnings
- Conclusions on the arbitrage of crypto currency
Principles of trade
Exchange transactions and speculation on the exchange of cryptocurrency are identical to any other. To make a profit you have to buy cheaper, sell more expensive. That is, just like when investing in ordinary currency. Naturally, the base of instruments and the principle of determining goals for trade are put in the same way as in the securities markets or forex. To make a profit by trading in virtual money will not be a problem for those who know the basics of trading in the stock market, securities and national currencies.
The main components used by the trading participant on the exchange are the following:
- orders sell, buy for sale and purchase;
- history of concluded deals;
- trading volumes held on the exchange (s).
To understand the basics of the exchange, it is worth considering all these elements separately.
Graphs of the course of cryptocurrency
The graph represents the history of the rate of one crypto-currency in relation to another or to fiat money. Most often the graph is presented in the form of Japanese candles, clearly demonstrates the development in time of the difference ratio of spread.
Spread is the difference between the currently offered, the best values for the sale (ask) and the purchase (bid) of the currency, which are relevant on the exchange.
The presentation of the schedule in the form of Japanese candles is taken at the stock exchange, because it is considered the most informative to trade. Especially it concerns the issues of technical analysis.
The Japanese candle indicates the movement of the price for a certain period of time. Figure 2 shows an example with the basic elements of the candle. Graphs of the same pair of crypto-currencies can be represented with different time axes, for example hourly chart or 15-minute time, on which the unit of time is hour or 15 minutes, respectively. One candle shows the values that were relevant at this time interval.
The body of the candle, that is, the rectangle, is formed from the values at the time of the beginning of the next period of time and its end. If the opening level is below the closing level, then this candle is called bull, it is painted in red or black. In the opposite case, the bear candle is painted green or white. So visually it becomes clear that with the bullish candle the course grew, and when the bear was falling.
The lines that depart from the candle are called shadows, indicate the presence of maxima and minima that were recorded during the time of the candle formation. In the absence of the upper shadow, it is said that the top of the candle is cut off, in the absence of the lower shadow, the base is cut off. Dodges are candles that do not actually have a body, so the price at the beginning of the time period and at the end is equal to. Spinning tops are candles with a small body size. The ability to read candles greatly facilitates the trade in crypto-currencies and other financial instruments.
Orders for purchase and sale
Orders for purchase / sale from participants in the trade on the stock exchange form a so-called glass. This is a list or table that lists requests from users for the purchase or sale of one crypto currency for another or for fiat money and approximated by value to the current price at which the pair is traded.
Figure 3 shows an example of such a list. In three positions, the offer is submitted to the participants of the trade, the total amount of the crypto currency that they want to buy or sell at this rate and the total amount of the second crypto currency or real money for which the transaction is being executed.
The glass reflects the desire to trade in crypto currency at the rate of interest. If there is a counter offer to sell or buy, then the transaction is made, and the current price of the traded pair is corrected towards the perfect transaction. It should be borne in mind that, for example, if there is a sell order, counter offers of purchase are sought for at a price equal to or greater. In the absence of reply sentences, the warrant remains on the demand list, or until the order cancellation instruction comes from the participant who put it out.
The analysis of the market on a glass of quotations
Only based on the data from a glass of quotes, you can perform analysis and make decisions for trading. The first thing you can calculate based on the list is the current spread on the pair being traded. For this, the first values from the list are taken, and their difference is calculated: 23694-23439 = 255 rubles.
Based on orders placed in a glass with a large volume, you can predict the further behavior of the price chart before trading on the exchange of crypto currency. So if large purchase orders are found, then we can expect rapid growth. In the reverse situation, a large order for sale, most likely, will push the rate to decline.
It is important to remember that not all the requests submitted by the participants are listed in the list. Only the positions closest to the current price are displayed in it, therefore, it is already quite difficult to find out how the course reacts after a number of large positions already worked out, so that only quotations can be counted on short-term analysis only. The easiest way is to filter the list for large queries, and only on the basis of their working off, to draw appropriate conclusions. For a deeper analysis, you will need to apply approaches that include a review of the news about the pair you are interested in, or the means of technical analysis.
Separation of orders into passive and aggressive
An order can be called passive if it is put on hold not at the current exchange rate, but at a certain level, which is supposed to be strong resistance or support. Such orders just form the strength of resistance / support levels (sup / res). Only at the moment when the course of the crypto currency will approach the specified level it will be clear whether it will be able to overcome it or after testing will reverse in the opposite direction. Determining in this case will be the ratio of the list of positions for sale and purchase, as well as trading activity, when they place orders only at the current exchange rate.
Aggressive orders are those that are intended to trade on the exchange at the current level. In other words, they are called instantaneous, since they are executed at the first opportunity, there is a response sentence. The main part of the movement on the chart is formed and supported by aggressive orders. After the execution of a major aggressive order, the exchange rate can make a significant movement and cause the triggering of a whole list of pending passive orders.
Levels of resistance and support for the price
The price is constantly changing, forming a schedule, far from rectilinear movement. It contains peaks and dips, which mark the highs and lows, often called local extremum. In addition to this, utmost extremum over a significant time interval are called significant or absolute. If you can draw a line along a series of highs or lows, it will indicate the level of resistance and support, respectively. These are the levels and values of quotations at which the course of the crypto currency is clearly perceived as a significant obstacle, after which it makes a turn.
Strong levels of support arise in places of accumulation of a significant list of purchase orders. Also with the resistance level, which is determined by the presence of a significant list of sell orders. Actually, the main goal of the majority of the exchange’s players is to purchase the crypto-currency during the depreciation and sale at a time when the price reaches higher values.
If we represent resistance and support lines in the form of a channel, then it is most profitable to trade at the borders of the channel. Determining significant levels for the price chart is one of the main tasks for any analysis and forecasting.
One of the main definitions that market participants face is the trend and trend price movement. It is important to know the direction of the trend. The trend itself is just a channel composed of parallel resistance / support levels.
The direction of trend movement is determined by the slope of the levels. If they are directed upwards, then the trend is called ascending. This means that the trade in crypto currency is conducted with the predominance of purchases. For a downtrend, the opposite is true. The lateral trend is a movement in which the resistance / support levels are horizontally positioned and an approximate equality of sales and purchases is observed.
History of completed deals
According to the history of transactions, one can judge the total volume of trade on the exchange and a particular pair. This helps in the first place to assess the interest of the bulk of participants to a particular price for the provided instrument.
Use of trading volume in the analysis
The volume of trade is represented as the total number of units of traded crypto currency, which passed from hand to hand on the basis of executed orders for a certain period of time. Naturally, talk about the direct transfer of something material speech does not go. For analysis, it is very important to measure the volume that emerged when a price reaches a certain level. This can be a strong signal to start trading in anticipation of further price movement.
In various software platforms for trading with crypto currency, a vertical and horizontal volume representation is used. The highest prevalence on the exchanges was the vertical volume.
In this case, a list is formed with information on the amount of all concluded transactions for a certain period of time and displayed as bars under the price chart in time-bound. The time interval for building one column is the same as on the price chart. That is, if the hour schedule is used, the volume is represented in the form of piles, each of which indicates the total volume of trade in the past hour. For the daily chart, it is calculated for the entire trading day.
The most practical use of volume may be the determination of the end of the corrective movement as part of the trend. Strongly increased volume at a price going against the main trend, can signal its end. This moment is profitable to start trading in the direction of the trend.
However, it should be borne in mind that the presence of a large volume of trade in crypto-currencies may not always indicate a further strong movement of the price. The main incentive for changing quotations are aggressive orders, and it is impossible to determine only the prevalence of bearish or bullish sentiments in volume only. This will help the joint analysis of a glass of quotations and volume.
Differences between the exchange of crypto currency from the stock and currency markets
Unlike the stock or currency market, volatility, which is observed on the exchange of crypto-currencies, is hundreds of times higher. Volatility determines the size of the price movement for a certain period in time. For example, in 2013, the bitcoin rate rose by more than 5500%. Such changes during the year can not be found on the securities market, shares or real currencies.
Given the steady movement of the exchange rate on stock exchanges in order to trade with tangible income, it is necessary to invest significant funds in turnover. On the other hand, for the whole list of exchanges, it is quite probable that the currency will be invested only 5,000 rubles, and in a few days it will receive a net income of 30,000-40000 rubles. Naturally, together with the possibility of rapid growth of savings, you can also quickly lose everything, that is, incredible volatility carries high risks. Everything depends on the ability of a participant in trading on the exchange to correctly forecast the rates. To do this, you can use both a fundamental analysis, relying mainly on news related to the interests of crypto-currencies, and trust in technical analysis.
News trading strategies are more effective, however, to find adequate news on crypto-currencies and, most importantly, in time is extremely difficult. One of the best sources of news are thematic forums and blogs, in which players often post their views and comments on further developments. In the mass media, news on the lists of crypto-currencies if they appear, then with a long delay, which negates their relevance. Much can be picked up, for example, by visiting the thematic forum bitcointalk.org.
It should be borne in mind that on the stock exchange the main part of the movement is created by limited groups of participants who sell large amounts of funds and are able to make a significant correction of the exchange rate. To say in advance about their intentions, such groups or individual players are unlikely to have time to detect the beginning of events in time and place the corresponding orders.
Other, more dangerous for a beginner player are situations where some market participants deliberately cause a sharp price movement in order to attract the attention of the masses to the beginning of a more significant advance. As a result, a lot of hasty market participants pick up the initial spurt, start trading and already stimulate traffic on their own.
Important rules for the exchange crypto-currency
For beginners, and many already familiar with the exchanges of crypto-currency, it is advisable to get acquainted with the list of main theses:
Greed is the main enemy of any trade. It is never worth waiting for additional growth or a fall, if the forecast does not convincingly say this, it is better to be safe and stop on time or to exit on the existing conditions without waiting for the ideal option.
Patience is a guarantee of profit. This applies both to the maintenance of open positions and to waiting for more convincing signals to enter. This simple thesis will allow you to understand how to trade with the crypto currency, avoiding excessive impulsive entries and exits in anticipation of a strong move.
It is extremely important to always monitor the glass with a list of quotes. A glass is the main source of information for the exchange.
The volume and capitalization for the markets are the key factors reflecting the mood of other players. Because only knowing these characteristics, you can clearly predict the behavior of quotations.
Dictionary of the market of crypto currency
Fiat money – refers to currencies that have minimal or no intrinsic value themselves (i.e. they are not backed by commodities like gold or silver) but are defined as legal tender by the government, such as paper bills and coins.
Crypto Exchange – A website that helps one buy/sell cryptocurrencies.
Bulls – a designation for market participants, who by their purchases raise the rate.
Bears – a designation for market participants, who reduce their sales by their sales.
Trend – the direction of the general price movement. The moment when each subsequent extremum is higher than the previous (uptrend) or lower (downtrend). A lateral trend or flat shows a balanced market condition
Growth is a convincing rate increase.
Drain – a sharp drop in the rate.
Wall – an order or a group of orders, which can have a significant impact on the price movement. In other words, the expected level of resistance or support.
Glass (stock glass, list of quotations) – a table indicating orders from market participants, in which a price close to the current one is offered.
Whale – It refers to an entity or a person who holds an absurd amount of particular cryptocurrency and has the potential to manipulate the market.
Hamster or just noob is a beginner on the stock exchange, which practically does not understand the situation, makes decisions and trades without taking into account even the main features of the market, analysis and forecasting.
Shear is the definition of a situation where funds from hamsters are transferred to more experienced players. Often the definition is applied to the situations of draining the means of hamsters, who were led to provocation, a false price movement.
DYOR – “Do Your Own Research.” The trader’s caveat that advice shouldn’t be taken at face value.
ATH – An All-time-high price of a cryptocurrency.
FOMO – “Fear of Missing Out.” When a coin starts to moon, dumb money rushes in.
FUD – “Fear, Uncertainty, and Doubt.” Another non-crypto term that describes attempts to scare weak-handed coin-holders into selling their positions, often with rumors of exit scams or hacks; the cheap, dumped coins are then picked up by the FUD-ers.
ICO – Initial Coin Offering of new crypto coins or tokens offered to the general public in return for their fixed priced investments. It is a new way of decentralized crowdfunding.
TA – Trend Analysis or Technical Analysis. Refers to the process of examining current charts in order to predict which way the market will move next.
Mooning – In the crypto-world, it is referring to a price going up astronomical levels.
Peer to Peer (P2P) refers to the decentralized interactions between two parties or more in a highly-interconnected network. Participants of a P2P network deal directly with each other through a single mediation point.
Pump And Dump – The recurring cycle of an getting a ton of attention to the cryptocurrencies, leading to a fast price increase, and then of course followed by a huge crash.
Short – short positions that are designed to make a profit when trading is decided on small time periods and abrupt course movements.
Long – long positions, profit taking is assumed after a long period of time (week, month, etc.)
Volatility is a sharp price movement with a large amplitude.
The turn is a situation where the movement of a pair changes direction. For example, the crypto-currency was growing and, after reaching a certain resistance level, began to decrease.
Fundamentals of technical analysis in the trade of crypto currency
TA is a technical analysis. It is used to analyze the history of the market (and its psychology) to predict the future.
There is an opinion that TA in crypto currency is more important than in a conventional market. The reason is that this system is quite young compared to the same Forex. Since the market capitalization is not yet high, the crypto currency is more volatile and fluctuates more.
“Mom & pop” traders are much more influential on the market than on stocks and FX. And also there is a new wave of traders who are quite young and inexperienced. A lot of very young, not yet exchanged the third ten. When they get on the stock exchange, all they have is Google and from there the basis of TA. Accordingly, when we have a lot of people with the basics of TA, the market will work well on these basic principles.
The three main elements of technical analysis
Trendlines (support, resistance level)
RSI (Relative Strength Index)
Figures (flags, double bottom / top, head and shoulders, etc.)
If you can learn these basics and apply them correctly, I will tell you directly: you will become a winner in the market.
Trendlines are basically just lines that connect the highest points (ceiling / resistance) and the lowest points (support / gender). Example:
When after this a new maximum appears, and then a lower maximum, it becomes a new trend ceiling. The same goes for support. Note that every time the graph reaches a point on the line, it either jumps back (goes in the opposite direction) or contracts.
When two points intersect, a breakthrough point is created. It is here that “bears and bulls” are fighting and “betting” on whether the market will be bullish (the price will rise) or bearish (fall).
There are many indicators that help to find out which trend is coming:
See how strong the support / resistance is. You can understand this by seeing how many times the price touches each of the lines. If there are 7 touches of the ceiling and only 3 floors, most likely, the price will go down, but not go up.
Use other indicators, such as RSI / Ichimoku clouds. I personally prefer RSI. Although Ichimoku is also very powerful and gives a lot of good signals.
Regarding the lines of trend and support, I want to say: distance the schedule! It seems to you that you are approaching a breakthrough point, but this may be a false indicator, because a month ago there may be strong resistance. One of the biggest mistakes that I see in the markets is that people analyze a small section / part of the market and do not take a step back to see the full picture.
So I called the market “bearish” for bitcoin, when it was 2500-2600.
While everyone looked at bullish indicators for the last month or so, I spent the time to look at the candlestick chart at 1 week, which clearly showed that the price was far from organic support. See screenshot:
If you look at this diagram (yes, here I reached the price of $ 6.50), you will see that the previous rise was high from the support line and should cause a correction. This line of support was repeated on all stock charts.
History, as a rule, is repeated. But frenzied growth has a catalyst from the outside. The BTC became a mainstream, institutional money flowed into it. If there is no such, epic, catalyst … do not expect the story to repeat, and bitcoin will soon grow to $ 1 million.
Anyway, this lesson – study the schedule!
Another important thing to learn is the model. The main flags, pennants, head and shoulders, as well as wedges.
The flags are a bullish indicator. They look like small flags. Whenever there is a big splash from something like a breakout of a triangle, then there will be a consolidation point (remember, the top and bottom lines converge into one). Example:
This is an example of a bull ladder. It consists of several flags placed one above the other, which tend to upward.
Note: flags can also be in the consolidation tunnel, not in the form of a triangle, but as a canvas of a flag.
The head and shoulders (or the inverted head and shoulders) are another basic template. The more H & S, the more likely it is to be the right figure. H & S is an indicator / signal that the market is changing the trend. The usual head and shoulders are a bear market. The head is the highest point, and the right shoulder means a turn to a downtrend. Inverted head and shoulders – this is the exact opposite, as it was recently with bitcoin (also notice the flag on the top of the chart).
Wedges are other signs of a reversal. They can be used both in a short space and in the longer term. I personally like to track them in tunnels for short positions.
Example: this is a small wedge. You can see how the market is moving and creating a wedge. If I were trading in the afternoon, I would sell around the top of the wedge and bought a little lower.
People usually make mistakes with wedges as with a powerful trend reversal pattern. This is not true, most of the time the fall would be quite small. However, if you put a lot of these small bets, your winnings will be a significant amount. I try to do this during the bull trend, to accumulate more and more coins before I go out.
The falling wedge is just the opposite wedge. This is a great way to buy currency at a low level.
Strategies based on technical analysis
Using a mathematical approach to trading on stock exchanges, are still a matter of heated debate. Some traders believe that they are inapplicable to crypto-currencies, while others say it was here that they found their true application.
The simplest strategy is the use of so-called moving averages, which help determine the average value of the price for given intervals of time. If the value according to the graph above the moving average, the price increases, if lower – then falls. However, moving averages can not be called the best tool for trading bitcoins and other currencies.
Optimal today are considered such trading strategies for the currency, as trading on kickbacks, trading on impulses, as well as trading on breakouts. On the basis of these strategies, you can even write a small manual: “Trading on the exchange of crypto-currencies for teapots.” They give practically guaranteed profit. Using a tool called “Japanese candles” is also a mechanism that can be called one of the best, if we talk about how it manifested itself in trading for its entire existence.
Seven rules of safe trading on the exchange of crypto currency
Consider seven simple, but very important and fundamental rules of trading on the Bitcoin market and other crypto currencies, which will help novice traders not to stay at a loss.
In the wake of the explosive growth in the popularity of crypto-currencies and the abundance of news in the world media related to digital money, many people wishing to play and earn millions appeared on the exchanges. However, most of them suffer losses simply because they do not observe the fundamental rules of a very risky game.
You can play on the stock exchange only with the money that you do not mind losing.
In no case can you invest in the crypto currency all the savings or take out loans, which, sooner or later, will have to be given. Playing the last money can not be calm, confident and long-term. So it leads to hasty decisions and inevitable losses.
Buy the crypto currency is necessary only at falling, and to sell on growth.
As in life on the currency exchange “behind the whole planet” the crowd is moving. In the long run, against the backdrop of thinking independent people, the crowd always turns out to be a loser.
Therefore, you need to buy before the beginning of growth, with a short or long-term fall, otherwise you can fall into the trap of manipulators.
And to sell assets, respectively, with growth when the price reaches the second half of the expected peak.
At the same time, being a beginner, do not try to actively play on the bounces. As a rule, this results in a lost profit after a successful purchase or losses, if an unsuccessful moment is chosen for the restart.
Do not try to catch only the minimum and maximum quotes.
The course is managed by so-called manipulators, whose assets allow to raise or lower the price by several tens of percent in just twenty minutes of active bidding. They can also create panic in the ranks of newcomers and control the level of falling, growth of quotations.
The maximum level of growth or fall in the price of a crypto currency depends on the big players, but even they at all will, in certain moments, will not be able to guess the power of a panicky or positive mood in the ranks of the common masses.
Therefore, you do not need to wait for the minimum point of the fall and dream of instant growth to specific heights. Being a beginner is better to record profits at the level of “above average”, otherwise you can not even have time to sell BTC.
You should not play for short distances at low trading volumes, when there is not enough volatility.
Minor trading volumes indicate that in addition to bots, no one plays. So-called shorts, players at short distances, watching from the side in anticipation of a convenient moment.
In such situations, when it is not clear what will happen next and even a relatively minimal purchase can adjust the course, it is better not to be included in the medium-term game.
It is strictly forbidden to play in the same direction for the entire bank.
Purchase for the entire available amount immediately get you out of the game. Since the course is manipulated by manipulators with millions of US dollars, and not the crowd, and the medium-term dynamics of the course is weakly “technical analysis”, buying assets for the entire bank will easily turn a player into a long-term investor.
For absolutely safe trading on the exchanges, it is worthwhile to divide the bank into 4-8 different directions. This can be Bitcoin, Litecoin, Forks, Pairs or various monetary units.
In this case, it is best to place orders not more than 2-3% of the amount allocated for each position. In the case of an unexpected dump, a fall in the rate, this will allow you to recoup small purchases on the drain even in the case of initial purchase at the highest values.
For example, if the account is 1000 US dollars and the Bitcoin rate fluctuates at $ 1000 for 1BTC, then a maximum of $ 250 can go to play on a pair of BTC / USD.
Let’s say that manipulators purposefully inflated the price of BTC to a thousand dollars and at the most unfortunate peak moment, assets were purchased at 3% of $ 250, that is, $ 7.5.
Immediately after the purchase, during the active pumps, a rebound occurs to $ 920 on a pair of BTC / USD, during which you can actually buy another $ 7.5 bitcoins at a rate of $ 950.
If, after the rebound, the rate continues to grow, even without additional purchases, assets can be sold at 1050$ or more, as the price during the pump at crypto-exchange exchanges always varies according to the same schemes.
If the price continues to fall, then it will be possible to continue buying bitcoins at certain price thresholds. Points for purchases can be steps of 20, 40 or even 50 dollars in the fall, depending on the history of the pampas and the expected level of the fall.
Thus, even an erroneous purchase at the peak before the discharge will not be fatal, since having bought $ 1000$ assets will always be able to pay off at a rate of 300, 450 or even 600 US dollars for 1 BTC. In addition, the availability of cash after an incorrect purchase will make you feel confident and make the right decisions, due to which possible losses are leveled and turn into profit immediately after the purchase at the minimum values and sales during the rebound.
Such tactics will not bring much money if the bank has only a thousand dollars, but it will help you learn how to play, feel the stock exchange and not lose all your savings. And in the future, the skills will bring good profits when playing at short and medium distances.
Strategies and orders must be recorded.
When playing at any distance, with the exception of long-term investments, the recording of planned and executed orders for each direction will help to calculate the average purchase price and form a sales strategy at a certain stage. There is a history of perfect orders on the exchanges.
Do not listen and believe in what is written in the exchange chat.
The absolute majority of forecasts in the chat is formed based on personal expectations or technical analysis, trends that most often do not work on the crypto-exchange market.
Forex strategies and all analytics from world famous multi-billion dollar exchanges do not work in the crypto currency environment simply because one player with 25 million dollars can pick up or drop the rate at the right moment to 20% in just 45 minutes.
Accordingly, any form of analysis and forecasting can become erroneous due to one single player, a broken wallet, invented news and other factors from a number of force majors.
And if something with a 100% probability may not work, then at high risks it does not work at all.
Arbitrage – a scheme for earning a currency on the difference in the exchange rates of different exchanges
Arbitrage is a currency that earns on the difference between the value of the same asset on different trading floors. The very scheme of the process is simple: we buy a crypt on one exchange (where the lowest price is), sell it on another (where the highest), go back and repeat the process in a circle. Time it takes a bit, does not require deep knowledge of the crypto market and trading experience, the risk is minimal.
What is the catch, you ask, is that nothing! Without going into technical details, the difference in price for the same asset between crypto-sites is due to the features of cryptology (in particular: decentralization, slow transactions, high volatility, lack of a single price glass, etc.). For us the main thing is that it is possible and necessary to earn on this phenomenon, while it is still possible. The arbitrage of crypto-currency is usually divided into classical and statistical. Let’s take a closer look at the example.
Classic Arbitrage 2018 (simple)
This is a kind of so-called spatial exchange, where transactions are conducted with the same financial instrument traded on different exchanges. Our goal is to earn. The task: to buy cheaper in one place and sell more expensive in another. Since the profit is obtained because of the ineffectiveness of the execution system itself and the aggregation of price quotes, the classic arbitrage method is considered to be practically risk-free. The minimum risk is of course there, but about it later.
Actually, the simplest arbitration looks like this:
- Buy currency 1 for currency 2 at low price
- We transfer currency 1 to another exchange
- We sell currency 1 for currency 2 at a higher price
To begin with, you need to monitor quotes on different trading floors and find crypto pairs with the greatest price difference between them. Then calculate the estimated profit taking into account commissions. If the result of the calculation is positive, we make a double exchange. The classical arbitration crypto-currency in 2018 is still relevant under the following conditions:
- Your deposit is more than $ 100 (it is possible less, but earnings will be penny)
- The commission for transactions and transfers of funds between exchanges is less than the probable profit.
- Arbitrage in the period of low-activity tenders with small volumes to have time to earn up to a significant price change is not in our favor.
- The difference in the quotes of a cryptopair is more than 2%
Example of arbitration exchange
At the time of the release of the post (19.05.2017 at 22.30), the cost of bitcoin in relation to $ on the Livecoin exchange was 1812 USD, and on Exmo – 1830 USD. The difference is $ 18 (1%). The arbitrator’s task is to buy on livecoin and quickly sell on exmo. As a result, net profit of about $ 15 (minus 2×0.2% per transaction and transaction fee). We look at eth / usd, in livecoin cost 206 dollars, in the exmo -200; the difference is 3% (206/200 = 1.03).
Static arbitrage earnings
Static arithmetic of crypto currency implies analysis of the current state of the crypto market, where the participant buys the most promising asset for growth. In contrast to the classical scheme of work involves the risk of wrong choice with subsequent financial loss. In fact, statistical arbitrage earnings have much in common with conventional trading strategies, based on calculating the probability of profit. The main task is to reveal the patterns of price movements of different instruments (correlation) and use it in trade.
In practice, this is done as follows: first, we select several dependent instruments (trading portfolio). Then we can determine which of them is now undervalued, and which is overvalued, and make a sale or purchase of a particular instrument. The effectiveness of statistical arbitrage is much lower, but the strategy itself seems more flexible than the attempt to equalize quotes on different exchanges. The solution often boils down to the creation of a neutral portfolio whose floating profit schedule moves in some channel without strong price spikes.
A typical example is the paired arbitration between Bitcoin and litecoin. Correlation between Bitcoin and litecoin is high. Currencies change places from time to time – litecoin goes up, bitcoin down and vice versa. We buy a catch-up currency and sell the lead, and at the time of their closing we close the deal. If we believe that currencies will come to some parity, then this transaction is without risk as such. The problem is that the dependence is unstable and this scheme will not always work perfectly.
Conclusions on the arbitrage of crypto currency
If in developed markets arbitration does not look so attractive investment, then in the developing markets there are still enough inefficiencies available for trades by ordinary traders.
Price Action Database Pattern traditional arbitrage on crypto-currencies, as it happened earlier with forex, loses its meaning because of the cost of additional costs. In turn, there are a lot of simple laws, because of which even primitive trading strategies should show the best result in comparison with the foreign exchange market. In any case, the study of the nuances of trade on crypto-exchanges is a promising and far-sighted direction, which will certainly bear fruit.
Ultimate platform for trading Crypto Currency
Free $ 10 000 practice account. You can try it right now. Registration takes only 2 seconds and 1 click.