Arbitrage Trading in Crypto, Explained
Legal and financial hurdles can make it harder to turn a profit from crypto arbitrage.
Irrespective of the type of crypto arbitrage a trader is embarking upon, the platforms they use will charge fees for transactions — and occasionally withdrawal fees. As a result of this, it is important for traders to factor in these costs to make sure that there is still a profit margin left at the end.
Cross-border arbitrage can also be made harder because of Know Your Customer (KYC) regulations — stringent requirements that mean a trader can sometimes only transact on an exchange if they provide valid government-issued identification or other documentation to verify their identity. Paxful, whose peer-to-peer marketplace is operational in most countries, says it is working to overcome these hurdles by implementing a tier-based KYC program and is working with local users to better understand their abilities in providing various forms of verification.
Another concern with exchanges surrounds the delays that can be associated with executing withdrawals. If you have a limited time frame to get funds from one platform to another, slow transfers can mean the opportunity is lost by the time a trade is completed.
It is also worth being weary of exchanges that offer exceedingly low prices for Bitcoin and other cryptocurrencies — prices that are sometimes well below the market rate. Although this may seem like an irresistible chance to make some tidy gains, it is always worth performing due diligence and checking whether an exchange is reliable first — otherwise, you could lose your capital. This could be because of a hack borne out of poor security or an inability to make any withdrawals whatsoever.