Why Professional Traders Don’t Use Crypto Arbitrage

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James Stone

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 Every beginning trader you speak to tells you about the advantages of Crypto Arbitrage. It’s simple math, James. Just buy low and sell high.

But it’s not that simple and professional traders know why. 

Go out and try buying Bitcoin on Binance and selling it on Kucoin, and you will soon find out why crypto arbitrage isn’t used more often. 

Or, buy a low cap coin on Uniswap and sell it on Gate. Big chances are, you’re left with the same results. You’re out a few dollars in fees and have a negative return on investment to show for it. 

And yet, it seems so logical — every retail trader, and every consumer, really understands the strategy behind Crypto Arbitrage. 

So what are these obstacles no one seems to overcome? 

Glad you asked. Let’s dive in together. 

The ungraspable strategy of Crypto Arbitrage

As we know, Arbitrage is when a trader purchases an asset in one place and sells it in another to profit from a deviation in price between markets. 

Maybe that’s the reason it’s such a popular and well-known strategy because it’s so obvious. Every trader, whether you’re a retail trader or a professional trader, checks the price of the markets daily. 

And it’s only a matter of focus to notice the deviation between exchanges. So when they decide to act on it, they might try to earn a quick buck by trying to take advantage of it. 

Many traders, myself included, get excited about the prospect of making a quick profit. But before you run off to quit your job, read up on some common pitfalls of this well-known strategy. 

The 3 most common pitfalls 

If it sounds too good to be true, it probably is. 

Let’s be honest, if it really was that simple everyone would be out there buying, trading and selling every day. Unfortunately, it isn’t. 

#1 pitfall Token ticker twins

Projects with the same name. There are thousands of cryptocurrency tokens out there that you can buy and many of them have a similar — or in some cases even identical ticker symbols. 

This might seem like an easy one to overcome, but it’s a real hazard. Take the Bitcoin Scrypt ($BTCS) and Bitcoin Silver ($BTCS) for example. If you, in your hurry to make a quick buck, send your Bitcoin Scrypt coins to a Bitcoin Silver wallet, you end up losing all your coins. 

And the worst part is, exchanges won’t offer you a refund if you make a mistake. So not only will you lose your entire stack, but this isn’t just a special case either. There is an entire list of tokens with the same ticker. 

This pitfall is especially dangerous for beginning traders. To avoid this hurdle, make sure the volume on the other exchange isn’t suspiciously low. And double check the logo’s of both projects, if they have different logos then it’s not the same project. 

#2 pitfall Offline crypto wallets

Occasionally, exchanges opt to disable their cryptocurrency wallets, either for the entire platform or for individual tokens. There are a variety of reasons an exchange might do this, with the most common reason being a security concern. 

Another obvious pitfall is where you end up sending your coins to an offline wallet or to the wrong blockchain. 

Can you imagine seeing a juicy deviation in price only to find out you send your EOS tokens to the wrong blockchain? (Yes, they moved from the ETH blockchain to their own blockchain) 

Again, without enough focus and double checking a token stack lost to the ‘’simple’’ strategy of Crypto Arbitrage 

#3 pitfall Expensive fees

Seriously, some exchanges expect you to sell a kidney just to get your Bitcoin off their platform. It’s no secret that here is a heavy variance in fees across the world. 

Information about fees is key for someone using crypto arbitrage. It’s crucial to know what kind of percentage you’re paying to withdraw or deposit your tokens. If you don’t take fees into account, you’re going to turn a positive return on investment into a negative ROI in a matter of one trade. 

In order to negate this problem, you need to be precise and thorough in your research. You can find a useful list of fees right here.

What is your favorite strategy? 

The problem with Crypto Arbitrage is obvious. And the fact is that it just isn’t that good of a strategy to use. 

So what strategy is? 

Are you using market research? Are you a cryptographer and expert in technical analysis? Or someone who rather uses bots like Cryptohopper to get ahead? 

Let me know what your favorite strategy is down below or on Twitter

James Stones

James Stones is Crypthena’s Editor-in-Chief. He writes on a wide range of topics, such as the state of market, the best hedge funds or who the best non-sleazy advisers are. 

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