DEVTOME.COM HOSTING COSTS HAVE BEGUN TO EXCEED 115$ MONTHLY. THE ADMINISTRATION IS NO LONGER ABLE TO HANDLE THE COST WITHOUT ASSISTANCE DUE TO THE RISING COST. THIS HAS BEEN OCCURRING FOR ALMOST A YEAR, BUT WE HAVE BEEN HANDLING IT FROM OUR OWN POCKETS. HOWEVER, WITH LITERALLY NO DONATIONS FOR THE PAST 2+ YEARS IT HAS DEPLETED THE BUDGET IN SHORT ORDER WITH THE INCREASE IN ACTIVITY ON THE SITE IN THE PAST 6 MONTHS. OUR CPU USAGE HAS BECOME TOO HIGH TO REMAIN ON A REASONABLE COSTING PLAN THAT WE COULD MAINTAIN. IF YOU WOULD LIKE TO SUPPORT THE DEVTOME PROJECT AND KEEP THE SITE UP/ALIVE PLEASE DONATE (EVEN IF ITS A SATOSHI) TO OUR DEVCOIN 1M4PCuMXvpWX6LHPkBEf3LJ2z1boZv4EQa OR OUR BTC WALLET 16eqEcqfw4zHUh2znvMcmRzGVwCn7CJLxR TO ALLOW US TO AFFORD THE HOSTING.

THE DEVCOIN AND DEVTOME PROJECTS ARE BOTH VERY IMPORTANT TO THE COMMUNITY. PLEASE CONTRIBUTE TO ITS FURTHER SUCCESS FOR ANOTHER 5 OR MORE YEARS!

Digital Currency Arbitrage

As an investor and entrepreneur it’s incredibly important to find inefficiencies in the market in order to gain or profit from such endeavors. Arbitrage, is an investment strategy in which the investor profits from discrepancies in price between two sellers. Often times this action takes place within seconds, and unfortunately for investors in fiat currencies or stocks, these inefficiencies are capitalized on within seconds, if not fractions of a second due to advanced trading algorithms and robot trading programs.

Luckily for the Digital Currency investor though, these opportunities for arbitrage do occur in the digital currency economy fairly often. That being said it’s crucial to know how to take advantage of the opportunity when it presents itself. Investopedia defines arbitrage as being:

The simultaneous purchase and sale of an asset in order to profit from 
a difference in the price. It is a trade that profits by exploiting price 
differences of identical or similar financial instruments, on different 
markets or in different forms. Arbitrage exists as a result of market 
inefficiencies; it provides a mechanism to ensure prices do not deviate 
substantially from fair value for long periods of time.

To clarify, think about it as two different markets, for the sake of example imagine two farmer’s markets. Let’s say that of the two farmer’s markets, one is located in the city and one in the suburbs. Additionally let’s assume that the farmer’s market in the suburbs is selling apples at a price of $1 dollar per pound, while the city market is selling the same apples at $2 dollars per pound. If you buy 50 pounds of apples in the suburbs, then travel to the city where you can sell the apples for $2 per pound, you’ve essentially made $50 in profits.

Sounds like a pretty sweet deal, and it is, as long as it lasts. Arbitrage is so sought after because of the huge financial incentive to profit from little to no effort that these inefficiencies see the light of day for a very short amount of time, so it’s important to keep a sharp eye on the prices of goods you intend on profiting from in order to take advantage of such short time frames.

Additionally there are costs associated with arbitrage. In stocks, without a full service broker who puts trades in for you free of commission you would need to factor in the cost per trade before trying to gain from price discrepancies.

In terms of digital currency, opportunities for arbitrage can happen fairly often though. Because the digital economy is so small relative to that of fiat currency trading economies or the stock market, the pool of competing investors trying to take advantage of arbitrage is much smaller. Furthermore as time passes more and more developers have tried to open digital currency exchanges, leading to a huge number of digital currency exchanges and subsequently discrepancies in price between those exchanges.

Setting Up For Profit

In the following example, I will be using Cryptsy and Vircurex to illustrate arbitrage. However these are not the only two exchanges for trading digital currency by any means. Refer to this list of 70+ Digital Currency Exchange Platforms for the best comprehensive list I have found on exchanges so far, though I would recommend using caution with the links because hackers have been known to tamper with such lists.

Let’s say that on any given day you have noticed a discrepancy in price between Vircurex and Cryptsy. For this example lets use Devcoin as the coin we intend on profiting from using arbitrage. When finding an opportunity, it’s essential to factor in the cost and time associated with transferring funds. The following charts include the most recent data pulled from both Cryptsy and Vircurex as of this writing, and detail the minimum withdrawal, withdrawal fees, trade fees, and Confirmations required for Bitcoin, Dogecoin, and Devcoin.

Also as a quick point of clarification I have used Dogecoin and Devcoin to illustrate arbitrage because I have found personally that with coins that have lower market prices, there are often much more frequent opportunities for arbitrage because of their high liquidity relative to the higher priced coins.

Exchange Data for Cryptsy

CurrencyMinimum WithdrawalWithdrawal FeeTrade FeeConfirmations Req.
Bitcoin0.010000000.000500000.25%4
Devcoin1.000000001.000000000.25%4
Dogecoin10.000000001.000000000.25%6

Exchange Data for Vircurex

CurrencyMinimum WithdrawalWithdrawal FeeTrade FeeConfirmations Req.
Bitcoin0.010000000.002000000.20%4
Devcoin1,000.00000000100.000000000.20%6
Dogecoin500.000000005.000000000.20%10

As you can see with low volumes of coin it would be fairly tough to profit enough to make it worth your time. This is why it is often more advantage to hold some funds, both Bitcoin and Devcoin (for this example) in Vircurex and Cryptsy at the same time. You could have funds in only one exchange, though as you can see transferring coins takes time for confirmations, and this could very well be the reason you miss out on an arbitrage opportunity, you don’t want to have to wait for the purchased funds to transfer to the exchange with a higher price for too long, or you might end up having to sell at a loss along with the fees associated with transfer/withdrawal.

Arbitrage Example

Let’s say the Cryptsy market has priced Devcoin at 0.000000020 while the Vircurex market has priced Devcoin at 0.000000023. This is a fantastic arbitrage opportunity, despite such a small difference in price, it’s easy to profit because your buying power in Bitcoin is much greater than that of other coins.

First thing is first, check the buy and sell orders. What is the ask bid spread? You want the highest buy price on Vircurex to be higher than that of the lowest selling price on Cryptsy. If that seems to be the case, next look at the volumes associated with those prices. If there are only a couple hundred coins making that first requirement true, you probably won’t be able to profit from arbitrage.

Lets say that the buy and sell walls are working in your favor though, and you have successfully purchased 100,000 Devcoin on Cryptsy at 0.00000020 costing you 0.02005000 Bitcoin (0.00005) from the trade fee. You can then successfully withdraw those coins and expect to receive 99,999 Devcoin (-1 DVC for withdrawal fees) in your Vircurex account in about an hour (6 confirmations required at 10 minutes per confirmation). Once you have received your DVC in Vircurex you can then sell those coins for a total of 0.02299977 Bitcoin. Withdraw the Bitcoin and you will lose 0.002 in fees from Vircurex to your personal wallet for a total arbitrage profit of 0.00094977 BTC (0.02099977-0.02005000).

As you can tell, it’s advantages to check several different exchanges and memorize the fees associated with said exchanges. In addition the higher the volume available to profit from, the better. Lastly, in the previous example, had you been holding coins in both accounts you would not have to wait for confirmations or pay unnecessary fees for transfer or purchased coins. However I don’t advise holding significant amounts of funds, to which I will explain more at the end.

In past a few developers have coded up some very useful arbitrage calculators that have been developed to use APIs from major exchanges for up to the minute prices. These calculators are very useful for spotting arbitrage opportunities but they have also made them harder to come by. One of the better arbitrage calculators I have found has been the Cointhink Arbitrage Calculator.

Final Thoughts

To conclude, arbitrage is a great way to make a few extra satoshis, if you know what you are doing, are being strict with your math, and are willing to keep a close eye on some exchanges there is definitely some money to be made. Be aware there are services that claim they can profit through advanced arbitrage tactics on your behalf with your deposited funds. However many of these services seem to be claiming profitability that is unrealistic. I would recommend highly that you do research on any service you might be considering that claims it can earn you interest through arbitrage activities.

Keep in mind also, digital currency exchanges are not regulated, they are run by individuals who may or may not be shady, and allowing someone else to hold the private keys to your coins is inherently risky because you have to trust that party. Additionally the developers behind these exchanges in most cases are not running the exchanges professionally enough to secure themselves from hackers. There have been a good number of reputable digital currency exchanges that have gone out of business simply because of one large attack by hackers, emptying the accounts of traders and taking off with the loot never to be found. Despite how lucrative arbitrage is, I would not recommend holding large amounts of funds across various exchanges. By doing so, you are leaving yourself susceptible to unnecessary risks.


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