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Say I have funds on two exchanges. Whenever the price of bitcoin is higher on the first one, I sell on that one and buy on the other one.

Is anyone doing this or has a program that does this? Is it even possible?

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This is possible and many people do it, but the loop can be significantly delayed by the time it takes to transfer fiat between exchanges. There may be automation software out there, but it is likely closely guarded by those who employ it. There is still the manual step of coordinating fiat movement.

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There are in fact a considerable number of people/institutions doing this already, and the proprietary software is getting smarter and significantly outperforms the opensource projects. It should come as no suprise that existing currency arbitrage software has been adapted to this task by trading companies very successfully, so if you are thinking of getting into it, you are about 2 years too late, the pickings are too slim for individuals to be worthwhile. (WALLSTREET WINS AGAIN!)

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Yes, there are tons of opportunities, especially when you do tri-currency arbitrage, for example check out the Bitdango arbitrage reports. These break down the buying of bitcoin on one market and selling on another. The hard part is moving the fiat money back to your source bank account. That is very hard because you need to have local currency bank accounts in different countries, etc - so that's the nut to crack.

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Yes. But over time third-party arbitrage tends to be pushed out by arbitrage performed by the exchanges themselves.

Essentially the arbitrage margin goes down as the exchanges buy and sell between each other. If a third-party bought and sold enough coins for decent arbitrage profit margins - it becomes an exchange by virtue of sheer volume.

This price convergence will be faster for Bitcoins than for physical commodities, as transport of the "commodity" is trivial and no tariffs or trade barriers exist on the flow of Bitcoins. Indeed, most currency arbitrage relies on extremely large volumes, extremely fast market transactions; and slight congestion/friction in the global market.

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I have been performing arbitrage via a PHP bot between bitfinex, btce, kraken, and poloniex for about 3 months. I have a total pool of about 1.5 btc that I am working with. My experience has been that the arbitrage opportunities on the books only last for a few sec. before the very competitive market recognizes the opportunity. I have an algorithm to identify book opportunities, and another to place offers on spreads, after commissions . Bottom line is that I can't make more than small change daily however, due to the very competitive markets. With a large pool of funds the opportunities do increase. I found a fund that seems to consistently deliver close to 1% return on business days, you might check out their blog - results page https://bitcoin-trader.biz/?ref=arbitrage

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