Crypto Arbitrage – Part III (Arbitrage Bots) 

In parts I and II of this article series, we touched on “what is crypto arbitrage” and “what types of arb trades can you do?” There might have been a time back in late 2017 where you could manually trade arbitrage between US and Asian exchanges for the same coin pair (Cross-Exchange Arbitrage), but those days are long gone as markets are far tighter today. It now requires the power of automation to detect an imbalance across exchanges or geographic regions, and take advantage of that during a 24 hour trading session. 

Trading bots are here to stay, and they are required to do crypto arbitrage. For the next couple of days, I’ll look at a few services currently available to retail traders: 

CryptoHopper

CryptoHopper is a Dutch company that’s been in this space for several years and is well-established. They allow exchange/market arbitrage, which they define as: 

Cryptohopper’s Arbitrage bot allows you to trade discrepancies in the market, capitalizing on changes in market price between the same pairs on different exchanges. There are two types of Arbitrage: Exchange Arbitrage and Market Arbitrage. 

Please note: you need an Adventurer subscription ($49/month)  to exchange Arbitrage and a Hero Subscription ($99/month) to run Market Arbitrage. 

Exchange Arbitrage – Let’s analyze how this mechanism works. Imagine an arbitrage opportunity between USD (your quote coin) and EOS (the coin offering the arbitrage opportunity): You own USD and EOS on exchanges A and B.

On exchange A, the price of EOS is 3.10, and on exchange B it is 3.02. Therefore, there is an arbitrage opportunity because EOS is more expensive on exchange A.

The Hopper will automatically buy and sell on both exchanges without needing to send funds from one exchange to another. Since buying and selling happens at the same time, the chance of being profitable is significantly higher than manual arbitrage.

The goal is to keep the same amount of EOS while increasing your total USD amount.

Market Arbitrage – Market Arbitrage looks for market inefficiencies within a single exchange. Your Hopper will attempt to increase the amount of the coin(s) you have selected as quote coin. It will do this by taking advantage of price differences between the currencies available on your exchange. More specifically, it will make three different trades to increase the amount of the chosen quote coin. Market Arbitrage works best on exchanges with lower trading volumes. (This is what we defined as Triangular Arbitrage yesterday)

For example, say that you have BTC as a quote coin. Your Hopper has found a market arbitrage opportunity that includes the coins Ethereum and Litecoin.

First, it will buy Ethereum (48 ETH) with Bitcoin (1 BTC) on the exchange (sell Bitcoin).

Secondly, the Ethereum (48 ETH) the Hopper has just bought is used to buy Litecoin (153 LTC).

The final step is to buy back Bitcoin (1.005 BTC), completing the triangle and increasing the initial amount of Bitcoin.

Wundertrading

Wundertrading is an Estonian-based company that’s been in the bot space for about four years; the big advantage to their platform is their extensive list of APIs in order to manage all of your spot crypto accounts from one interface, as well as automate those transactions.

Wundertrading offers bots that assist with these type of arb transactions: 

Regular Arbitrage: this style of arbitrage refers to buying and selling the same cryptocurrency in different exchanges when price differences arise. For example, Bitcoin bought from one exchange and sold at the other exchange where the price is high.

Triangular Arbitrage: Triangular arbitrage in crypto involves buying the asset from one exchange and selling it on the same exchange via price differences among other cryptocurrencies. For example, buying Bitcoin with dollars and then using Bitcoin to buy Ethereum and then selling ETH to repurchase the dollars.

I was not able to determine how extensive their arb library is, and I suspect with their “copy” function you are just following someone else’s arb. 

More arb bot vendors in Part IV tomorrow!