How the arbitrage works, Is transaction fee is included for calculating arbitrage across exchanges, cryptocoincharts seems to render incorrect values,

  1. Any other arbitrage available at open source?
  2. How to calculate arbitrage?

To answer your first question: I do not know any free, opensource, trusted software that arbitrages for you. It will not generate any money for the developers, and only depletes their source of income.

To calculate the profit in arbitrage you first have to know all the steps:

  1. Buy a Bitcoin for $600 (rate #1) on exchange A (trading fee #1)
  2. Send this Bitcoin to exchange B (withdrawal fee #1)
  3. Sell this Bitcoin for $610 (rate #2) on exchange B (trading fee #2)
  4. Send $610 to exchange A (withdrawal fee #2)
  5. Have $610 instead of $600 => 1.67% profit

Of course you can do this also with different altcoins, which travel faster between the exchanges than money.

As you see, there are 4 different fees that you have to calculate. Trading fees are most of the time a percentage of the volume, but withdrawal fees are most are most of the time fixed. That is also what I am assuming in the following formula:

Bitcoin on exchange B = X = (Start amount / (rate #1) * (1 - trading fee #1)- withdrawal fee #1)

USD on exchange A = Y = X * (rate #2) * (1 - trading fee #2) - withdrawal fee #2

profit = (Y/X - 1)*100 (outcome in %)

I tried to break the equation in pieces so that is more readable. X in the second equation is calculated in the first one. Y is the outcome of the second equation. Profit uses both variables.

The two most important variables are of course the rates. If they are very close to each other (within ~0.5%) there is very little chance to arbitrage. This is because the trading fees are around 0.2%, and you have to trade twice. If the starting amount is big enough, the withdrawal fee is negligible (for example: 0.00050 BTC on Kraken). You can fill in the variables (rate, fees, start amount) yourself to calculate the profit.

*Note: there could be an error in here. I am in no way responsible for any loss of money because of this calculations. I calculated it myself by hand a dozen of times and it is easy for a mistake to slip in. Also remember that the market changes during the transfer of money/bitcoin, and therefor your chance to make money can vanish.

  • Then cryptocoincharts.info seems like gives wrong arbitrage values it gives like mBTC, how is it possible without transaction fee
    – M.R
    Jun 4 '14 at 12:02
  • Im not sure how they calculate it. Much values are 0 here, so something is wrong indeed. The best way they could have calculated it, is with the lowest volume (bid/ask on exchange A or B) and use that as start amount (if the lowest volume is on exchange A) or as X (if the lowest volume is on exchange B). They should have taking into account the transfer/withdrawal costs, otherwise it is wrong. But what you can learn from the site is that the profit is very VERY low, and you shouldn't do it by hand.
    – Mathias711
    Jun 4 '14 at 13:21
  • So arbitrage means buy at lowest price and sell it for highest price right, then why the terms "bid" & "Ask" are mentioned as HighestBid and LowestAsk price?
    – M.R
    Jun 5 '14 at 4:58
  • Because you can also start at exchange B. Then you sell your bitcoin to the highest bidder, and buy back at exchange A for the lowest ask price.
    – Mathias711
    Jun 5 '14 at 6:31

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