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Arbitration

What is Arbitration? (cryptocurrency)

Arbitration describes a strategy where a trader takes advantage of varying prices offered by brokers for particular cryptocurrencies to make a trade (Chen, 2019). For example, a certain cryptocurrency may have a low rate in a particular country and a higher one in another country. Therefore, a trader may buy a cryptocurrency at a lower rate and sell it at a higher price in a different country. The different rates can easily be exploited due to price differences. However, there are many factors that affect how much profit a trader may make through crypto arbitration, and such are the reliability of exchange, fee, low demand, transaction duration, fiat currency deposits, money on account, and exchange error (Stephen, 2019). 

The reliability of exchange means that a trader should ensure they deal with reliable traders. A trader may suffer losses because of non-liquid or non-trustworthy exchanges. A trader should also evaluate the fees because transaction fees may significantly reduce profits. Also, there may be low demand that may make an individual sell fewer coins than expected after purchasing many coins at a lower price. Traders may face serious risks if there is a high transaction duration because coin prices may change drastically during the process. If a trader’s deposit on the exchange is low, one should not attempt crypto arbitration. A certain made an exchange error in 2018 when one of the displayed prices was significantly higher than its real value (Stephen, 2019). Therefore, many people bought coins in other areas and attempted to sell it a higher price in the company. By the time the exchange error was resolved, the coin had lost a significant portion of its value. Also, a quick transaction may not imply that the transaction was okay. The exchange process may slow down the transaction process, and a person’s desire to sell the coin at a higher price may fail. Many people carry out arbitration daily, and it is an essential investment opportunity if a person is willing to take risks associated with the process.

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