Arbitrage is a hot topic amongst crypto traders in South Africa. Very few people however understand what it is exactly. Even fewer people understand the risks and rewards associated with arbitrage. Others prefer to let companies execute these types of trades for them but as a result, end up losing 25% to as much as 50% of their profits.
Arbitrage, simply put, is taking advantage of market inefficiency. What does this mean, you ask? Well, suppose you have access to two markets when others can only access a single market because of their financial, physical, geographical, or similar situation. You are now in a position to take advantage of any price difference for a particular item, stock, or asset which is being traded, in both markets.
Here are the basic steps you should take to make money with arbitrage:
With both approaches, you have the option to be the maker or the taker. This means that you can either SELL into the existing BUY order book, or you can “make the market” by creating the lowest SELL order in the existing order book. Conversely, the same applies to the source exchange (where you buy the inventory that is being sold on the target exchange).
The simplest and easiest way to make money from arbitrage is to find a fast and efficient exchange in Europe with a good reputation. Both Bitstamp and Kraken have been operating since 2011/2012 and have good reputations. Both offer BTC/USD markets and have good liquidity, which is especially important if you want to do automated arbitrage. Kraken.com is probably the better choice (at the time of going to press) if you want to use automation tools like Hummingbot as it already has a built-in connector to Kraken
TIP: When transferring Rand out of the country you may want to consider shopping around for the best deal, it is easy to use the bank you already bank with but there are specialist providers that can usually offer you a way better deal such as Investec
You can automate the process by employing a tool such as Hummingbot to automate your trading. It already has a built-in arbitrage strategy and you simply need to configure the parameters to suit your needs.
Have you done arbitrage trading in South Africa? let us know your thoughts in the comments below!