Crypto Arbitrage – A Beginner’s Guide
If you’re unfamiliar with crypto trading, it might sound strange that anyone would be able to make money off of a price discrepancy. After all, doesn’t an exchange have a live order book? Wouldn’t someone need to fill that order before someone else can profit? The truth is, crypto arbitrage is relatively straightforward if you understand how exchanges work. To get started, check out our basic beginner's guide to cryptocurrency arbitrage.
Crypto Investing Step 1: Create an Account With an Exchange
There are many exchanges where you can purchase various types of cryptocurrencies. One of our favorites is Crypto.com, as they have great customer service, low trading fees, a solid user interface, and lots of coins available for trading. We recommend that you start with either Crypto.com or Coinbase if you’re just starting out with crypto.
Crypto Investing Step 2: Fund Your New Exchange Account
You’ll need a place to purchase your crypto with fiat such as a debit card or wire transfer. Exchanges with low trading fees, like Coinbase, are a good place to start. Some exchanges require you pay a small fee for every transaction, while others only charge one fee per-transaction no matter how many trades you make. To save on fees, consider using an exchange that has lower trade volume so you have fewer trades.
Crypto Investing Step 3: Purchase USD, USDT or BNB
If you don’t have crypto yet, you’ll need to buy some. You can do that on Coinbase, Kucoin, or Crypto.com but they all charge a small fee when you buy via bank account or debit card. I recommend buying either USDT (Tether) or BNB (Binance Coin). Both are stable coins (i.e., their value doesn’t fluctuate much) and are acceptable trading pairs on most exchanges.
The best part about USDT is that it’s less volatile than BNB or Ethereum. This means you can hold onto it longer without risking major losses.
Crypto Investing Step 4: Transfer Tokens from Exchanges and Wallets
Once you purchase your tokens, you will need to learn how to fluently transfer tokens between exchanges and wallets. This will be a crucial step, as you will need to do this in order to arbitrage prices between exchanges & swaps such as Pancakeswap. For example, say that you have 100 HMRN tokens in Trust Wallet and 200 USDT on CoinTiger. Homerun Token price might be slightly higher on Pancake than it is on CoinTiger.
Crypto Investing Step 5: Begin Researching The Coins You Want To Trade On CoinTiger/Binance/Pancakeswap/KuCoin...etc
Since arbitrage opportunities are rare, it’s important that you begin researching in advance which tokens you’ll want to trade on. I highly recommend a tool called CoinMarketCap (CMC) for researching all of your investments. CMC is a comprehensive collection of useful data that can be easily sorted by price, market cap, volume, ROI and more. It’s perfect for locating promising investment targets that could have an opportunity for profit by using an arbitrage strategy. Each token listing will have a section where you can see all the swaps and exchanges it is trading on and their respective price.
To make a profit from arbitrage, you need to sell your holdings on a different exchange/swap at a higher price than where you purchased them. This step can seem daunting if you don’t know where to start. A popular arbitrage move recently has been between Pancakeswap and tokens listed on CoinTiger. For this example, we will use Homerun Token purchased on Pancakeswap, under ticker symbol: HMRN while also holding USDT in your CoinTiger account.
In this situation, you'd want to transfer your HMRN tokens from your Trust Wallet to your CoinTiger account. Then you would transfer your USDT from CoinTiger to your Trust Wallet. Once you've done this, you would sell your Homerun Tokens for the higher price on CoinTiger while almost simultaneously buying more HMRN tokens on Pancakeswap (since it's at a lower price) using your USDT in your Trust Wallet.
At that point, you'd want to sell all of your tokens off on CoinTiger, while also cashing out back into USDT in your Trust Wallet. This way, you can repeat these steps again until you find a new price discrepancy between exchanges. At any time throughout these arbitrage transactions, if it becomes unprofitable for some reason, simply pull out of your position using USDT in your Trust Wallet.
