Understanding Crypto Asset Diversification - Part 3
Hello everyone, hope you all are doing good? I'm back with the Part 3 of this amazing series, Understanding Crypto Asset Diversification. If you haven't read the Part 1 and Part 2, I strongly suggest you that by clicking here for Part 1 and here for Part 2. In today's article, we would be looking at Arbitrage Trading in Cryptocurrency. Enjoy the read!!!
Arbitrage Trading is a trading strategy where traders try to make profits from the price difference between assets traded in different exchange platform or from different pairs of assets traded in the same exchange platform.
To understand this better, we have to look at the two types of Arbitrage trading, which are;
Exchange Arbitrage Trading
Triangular Arbitrage Trading
Exchange Arbitrage Trading: This is a type of Arbitrage trading strategy where traders seek to make profit by trading a particular asset across different exchange platforms and looking for which exchange platforms is trading the asset the lowest and the highest.
The trader will then buy from the exchange platform trading the particular asset the lowest and then sell that asset to the exchange where it is trading much higher.
For instance, STEEM/USDT is trading in Binance at $0.5, in MEXC Exchange is trading at $0.55 and in Probit Exchange is trading at $0.45. The idea about Exchange Arbitrage trading, is that, a trader will buy STEEM at Probit Exchange which is lowest and then sell the bought STEEM at MEXC Exchange which trades STEEM the highest. In so doing, the trader will be making a profit of $0.1 per STEEM. Imagine, the trader bought 100 STEEM from Probit Exchange and sold the 100 STEEM bought in MEXC Exchange, the trader has made a cool profit of $10.
I hope you understand what Exchange Arbitrage Trading strategy is all about now.
Triangular Arbitrage Trading: This is a type of Arbitrage trading strategy where traders seek to make profit based on the inconsistencies of the exchange rates of 3 asset pairs within an exchange platform.
For instance, you can have STEEM/USDT, STEEM/BTC and USDT/BTC pairs all trading in a particular exchange. The aim with this strategy, is to calculate among these different pairs and know which of the pairs is trading the asset highest and which pairs is trading the asset lowest. Then buy the pair trading the lowest and then sell in the pair trading the asset highest.
This strategy is quite difficult and requires a lot calculation and precision to make cool profit from.
I hope you understand what Triangular Arbitrage Trading strategy is all about now.
The main benefit of traders using Arbitrage trading strategy, is to make cool profits regardless, of the market situation, whether it is a bearish and bullish market, profits are been made.
Hi @menoski,
I have read your three posts and found them quite interesting, and no doubt they are a great contribution, I hope many can read them and see what works for them. There are so many options in the crypto market, that only dedicating to a couple of activities is absurd.
Arbitrage really requires to be 100% aware of the market.
I am in favour of portfolio diversification and I have also gone through your previous post about the same topic. I must say that this is something all investors need to follow in order to have a safe and least risky investment which can also provide the opportunities to earn better returns.
This one and your last post interesting.
Thanks for sharing with us..stay connected.
@tipu curate
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Thanks @alokkumar121