Arbitrage is one of the most profitable activities to perform in the cryptocurrency market. Due to the fact that this is a global industry and that there are many exchanges and virtual currencies, we can perform arbitrage trading to make profits. In this post, you’ll learn how arbitrage trading works and how to use the Crypto University Arbitrage Calculator to get the best arbitrage opportunities.
What is Arbitrage Trading?
Arbitrage trading makes reference to buying and selling an asset and profiting from its price difference. Let us explain this in simple terms.
Let’s say you bought $100 in bananas from a local shop in your town. In a neighbouring town, they are selling bananas for $120 rather than $100 due to increased demand in that town (they love bananas there).
So this is where you will buy all the bananas you are able to carry for $100 and sell them in the other town for $120. Every single banana trade will give you $20 minus the expenses of moving to the town and transporting the bananas. Basically, we are talking about costs related to logistics. If you take into consideration these expenses, you will be $10 up.
The same happens in the cryptocurrency market. You can buy Bitcoin (BTC) in an exchange and sell it in another where the price is higher. In general, there are some countries where the demand for BTC is higher (Zimbabwe, South Africa, and many others). Thus, it would be a great way to buy BTC in cheap exchanges and sell them in platforms where demand and price are higher.
The Crypto University Arbitrage Calculator
This is the reason why we have decided to create the Crypto University Arbitrage calculator. This tool will help you understand whether there are arbitrage opportunities in the market.
We take into consideration the currency pair BTC/ZAR through Luno’s API. We take into consideration the ask price of BTC in Luno. Just to do an example, let’s say Luno’s Bitcoin ask price is currently 300,321 ZAR.
Then we use the international Bitcoin price on Binance through the trading pair BTC/USDT. For this example, the price will be 19,162.94 USD per BTC.
The next step will be to convert the BTC price in local currency by using an API that would give us the USD/ZAR conversion rate. This will give us the price of 290,681.68 ZAR using a conversion rate of 15.16895.
We now need to calculate the spread for the exchange that is expected to take place. The Crypto University Calculator will use the Luno Ask price minus the International Spot price. As we saw in the example above this will be 300,321 – 290,681.68, which is equal to 9,639.32.
Finally, we also calculate the spread percentage to have a clearer idea of the difference in price between the platforms. In this case, this will be calculated by using the spread between these two platforms (9,639.32) divided by the Luno ask price (300.321). This would give us the final result of 0.032 or 3.2%.
If you want to learn how to automate your trading strategy to make more profits, check our web3 masterclass right away.