
Today's peak crypto arbitrage spreads for 26 pairs – BTC/USD 10.98% - wbelk
https://www.tokenspread.com/spreads/top-price-spreads
======
mrdmnd
I remember a classic MIT problem set in computer science where we reduced the
problem of finding a "profitable arbitrage loop" in a directed graph to a
shortest path problem: imagine a graph where nodes are currencies and edges
are exchange rates: we're seeking to find some loop of nodes U,V,W,...U such
that the cumulative product of the edge weights is greater than unity.

The trick is to transform the graph by taking the negative log of the edge
weights, which turns problem of finding a cumulative product > 1 into one of
finding a negative sum loop. Then, you can just run the Bellman Ford algorithm
and if it detects a negative cost cycle in the transformed graph, this
corresponds to a positive arbitrage cycle in the original graph.

I always thought that was a neat application.

~~~
nlperguiy
It's nice to do that to banks that didn't set their trading prices to avoid
arbitrage (did it couple of times myself).

For cryptocoins it's nearly impossible. Because in most cases there's no idea
when the actual transfer will be executed (if arbitraging between exchanges).

~~~
im3w1l
The trick is to have the currencies already there so you dont need to do a
transfer (well you will want to do one afterwards to get ready for another
round, but it isnt that time sensitive).

~~~
chatmasta
That just pushes the problem to the next trade. Even if you diligently keep
your accounts funded, you’ll need to rebalance them after most trades (by
definition of arbitrage), so your velocity will eventually be limited.

Concretely, imagine if every ten minutes you made an arbitrage buy on GDAX,
and sell on BitFinex. As long as GDAX remains the “buy side” of the arbitrage,
you will need to keep refilling your fiat funds at GDAX. You could “keep it
filled,” but this becomes more unsustainable as you deplete your bankroll. You
will eventually need to rebalance which will affect your velocity.

Disclaimer: I am not a financial professional.

~~~
hrmm1231321
Not entirely true. If you wait for the arbitrage opportunity to occur in the
reverse direction, you can rebalance. But you take the risk of waiting
days/weeks for a reverse dip opportunity.

Source: I tried to make money arbitraging BTC back in 2015. I made a 2x
return, entirely because of inflation, realized I didn't understand anything I
was doing and pulled my 8k out. If only I had kept it in :)

~~~
chatmasta
I would expect that the same exchanges tend to be on the same side of
arbitrage spreads, for various reasons that could include lack of liquidity.

~~~
hrmm1231321
If you plot them, you will see the spreads intersect now and then.

However, all the same risks apply e.g. with orders not being processed enough.

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hodder
One of the upsides of BTC is that it is supposed to be costless and
frictionless to sell across the globe, yet 1k+ arbs exist across exchanges. So
much for that argument. Maybe segwit2 will help, or another altcoin will
actually remove friction.

~~~
wcoenen
When there is a spread between exchanges in the BTC/USD price, doing arbitrage
requires requires not only moving bitcoin but also USD in the opposite
direction. USD transfers are usually still a lot slower, so the bitcoin
transfer speed is not the bottle neck here.

~~~
hodder
Which makes BTC purchased via exchange the Hotel California of Assets. You can
check in any time you like but you can't ever leave.

Something is amiss here. Selling BTC to USD should be instantaneous even if
cash withdrawal isn't no? Can you not look at the bid/ask and get executed at
the bid on these exchanges?

I should be able to buy "cheaply quoted BTC" on Exchange A. Transfer to wallet
at "higher quoted BTC" at exchange B, and executed a sale at the bid, even if
I can't pull my USD into my actual bank account for a couple days.

~~~
wcoenen
Yes, if you have USD on an exchange, you can instantly buy bitcoin, and
quickly move it to another exchange, and again instantly sell it there.

The problem is that after this sequence of events, your USD is at the exchange
with the higher priced BTC, while you need it at the exchange with the lower
priced BTC to repeat the process. This requires moving the USD back via the
traditional banking system, which is slow. The bank wires are the bottleneck.

Crypto-Crypto trading pairs don't have this problem, which is why the ETH/BTC
spread for example is much smaller. The spread there probably just reflects
fees and custodial risks that put a slight break on arbitrage.

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gjhgqpqndpe
Most of the big spreads seem to be caused by cex being much more expensive
than the other exchanges... Does that indicate something is happening with
cex?

~~~
runeks
A high price on an exchange is a symptom of problems withdrawing national
currency. In order to get around this issue, users will spend their on-
exchange national currency by purchasing e.g. bitcoins, and then transfer
these to their wallet or to another exchange (where they can sell and withdraw
the proceeds). This buying pressure pushes up the price, as measured in
national currency.

~~~
gjhgqpqndpe
I guess it doesn't necessarily need to indicate that the exchange is having
problems with fiat withdraw, but if they did your scenario could definitely
make sense.

I think it could also just indicate a lack of arbitrage being executed that
keeps the price in line with other exchanges, meaning as a separate market the
price is free to move higher / lower than other markets without necessarily
indicating some sort of problem at the exchange. Normally this would be sort
of synchronised to some level by arbitrage.

It seems like the arbitrage opportunity here is real and at least someone
recently managed to profit ~10% from it:

[https://www.reddit.com/r/BitcoinMarkets/comments/7kitks/arbi...](https://www.reddit.com/r/BitcoinMarkets/comments/7kitks/arbitrage_and_cexio/drmhhiy/)

Although of course it is a bit slow which exposes you to lots of risks, so if
you really wanted to do it you would need to hedge your exposure with other
types of trades (shorts, etc) to try to limit the amount of risk.

I guess what I am thinking is just it could also be the exchange is operating
fine, people are able to withdraw fiat, but it's just not worth the risk /
effort to run arbitrage (or people just aren't doing it) and that could at
least explain some price difference without there needing to be some sort of
systemic problem at the exchange. There of course could be.

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jnordwick
How is this being calculated? In didn't see anything.

\- You want to look at the order book, not just the last trade to compare the
bid on one against the offer on another venue. The bid-offer spread can be
very wide on some of these.

\- Fees should be included.

\- You still aren't pricing in counterparty risk, the biggest risk in crypto
trading.

\- I don't see CME and CBOT. The most reliably venues (you can replicate the
spot with a multileg trade).

~~~
gruez
>\- I don't see CME and CBOT. The most reliably venues (you can replicate the
spot with a multileg trade).

since those are futures, arbitraging them brings a bunch of other problems.
mainly, keeping your (futures) account with enough cash to prevent liquidation
(if there are drastic price swings). this is easier said than done because a
short position requires 100% margin (afaik).

~~~
jnordwick
Maintenance margin is 40%, I believe.

~~~
gruez
except for short on cme, which requires 100%.
[http://www.cmegroup.com/education/cme-bitcoin-futures-
freque...](http://www.cmegroup.com/education/cme-bitcoin-futures-frequently-
asked-questions.html)

~~~
jnordwick
I think you are reading that wrong. Initial margin is 100% to 110% of
maintenance margin (44%) depending on how they classify you (almost everybody
here is a speculator not hedger).

Current maintenance margin is about $34k on a single contract (5 BTC).

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unpwn
Is this actually feasible to make money or will you still get killed on
transaction fees?

~~~
mason55
Most of the reason for the spreads is counterparty risk. So you might have a
lot of trouble getting your money out of the exchange or the exchange might go
completely under.

~~~
JumpCrisscross
> _Most of the reason for the spreads is counterparty risk_

This "arbitrage" is a classic picking-up-nickels-in-front-of-steamrollers
trade.

~~~
wc-
To be fair, all arbitrage is? You are picking up a nickel against a price move
with no real guarantee you can execute the other leg successfully.

~~~
JumpCrisscross
> _To be fair, all arbitrage is?_

You are correct--there is no such thing as "risk free". By convention, we mark
our zero point at the risk of sovereign bonds. It is the smallest risk
everyone in our economy agrees on a level for. It still contains "risk". But
it's a convenient--and practical--reference point.

The analog in Bitcoin would be getting your transaction committed to the
blockchain. It's still "risky". (Quantum computers could break the
encryption!) But it's a convenient--and practical--zero. (You'll notice the
advantage of a currency backed by a debt-like obligation. Interest rates come
as a first-class function. There is no "risk free" borrowing rate in Bitcoin.)

Between these zeros, an arbitrage would require, simultaneously, committed
transactions on the Bitcoin ledger and immediately-available funds in an FDIC-
insured (or analogous, _e.g._ SIPC) account. That is not something exchange-
based trading, which involves depositing U.S. dollars and/or Bitcoins with the
exchange in exchange for an IOU, permits.

~~~
qubex
That’s actually a bit of a loaded argument... we assert that all arbitrage
profit must be at least counterbalanced by various kinds of risk (including
liquidity risk, counterparts risk, _& cetera_) because we're _assuming_ that
we're operating in an efficient market. We should actually reason the opposite
way around: analytically evaluate all sources of risk, compare it to the
expected profit, and if the latter is no greater than the former, deduce that
we are in an efficient market.

~~~
JumpCrisscross
> _we 're assuming that we're operating in an efficient market_

Arbitrage is, by definition, the refutation of a strong-form efficient market
[1].

> _liquidity risk, counterparts risk_

The presence of these risks betrays the absence of a true arbitrage. A pure
arbitrage involves simultaneous execution, thereby negating liquidity risk. It
also involves instantaneous settlement, thereby negating counterparty risk. In
the real world, I've only seen it in specialized real-time foreign exchange
and money markets.

The risk you can't get rid of is the "risk-free" risk. If the U.S. government
blows up, you will not make money on your triangular arbitrage [2].

> _analytically evaluate all sources of risk, compare it to the expected
> profit, and if the latter is no greater than the former, deduce that we are
> in an efficient market_

This is an interesting area of theoretical finance [3]. It is practically
useless. There is no list of "all sources of risk," much less any way to price
it.

[1]
[https://www.investopedia.com/terms/s/strongform.asp](https://www.investopedia.com/terms/s/strongform.asp)

[2]
[https://en.wikipedia.org/wiki/Triangular_arbitrage](https://en.wikipedia.org/wiki/Triangular_arbitrage)

[3]
[https://en.wikipedia.org/wiki/State_prices](https://en.wikipedia.org/wiki/State_prices)

~~~
qubex
I used my terms woefully imprecisely and you were right to point those
inaccuracies out.

Incidentally, [3] is very close to my field of research back when I was doing
postgraduate studies in economics, but as you mention, it has close to zero
applicability.

------
amriksohata
Any website that does it for you but just needs your funds?

~~~
brokensegue
yeah just send bitcoin to 1111111111111111111114oLvT2

~~~
amriksohata
Sent bro, can you confirm your account number and sort code? :D

~~~
brokensegue
they are both somehow 1BitcoinEaterAddressDontSendf59kuE

dont ask

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mpetrovich
Given all the withdrawal issues with cross-exchange arbitrage, would something
like triangular arbitrage within a single exchange be better?

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gigatexal
How does this work in practice when it takes days to transfer coins and the
clearing fees are high still

~~~
nathanasmith
LTC is often higher on GDAX than most other exchanges and the coin takes about
15-20 minutes to send. Sending Bitcoin back can take a while but that has more
to do with GDAX/Coinbase actually posting your transaction to the blockchain
than Bitcoin itself (though, yes, Bitcoin transactions themselves can take a
while). The longest I've had to wait was 8 hours total. But 5-10% profit in 8
hours is, um, pretty good.

The last time I did this about a week or 2 ago, there was an 8% difference
between GDAX and Bittrex. At the end of it, after fees and all that, I made
6%.

~~~
SilasX
Stupid question: what about doing more limited, "pseudo arbitrage"? Where you
just maintain balances in USD and cryptocurrencies on each exchange and "buy
low sell high" without actually completing the loop, and only later even out
your balances across exchanges until you're ahead?

That is, if LTC is higher on exchange A than B, then you buy all you can on B
and sell on A. You've made free money, but aren't strictly better than before
because you have a different allocation across exchanges. But then you can
later do a slow transfer that evens them out.

~~~
nathanasmith
That requires holding a balance of LTC on different exchanges which is great
if you really like LTC but personally I don't since you can't really trade
that much with it other than BTC and USDT/EUR. Ethereum on the other hand has
a ton of trading pairs on many exchanges so I would consider your strategy
with it. Only issue is, arbitrage opportunities with Ethereum come around a
lot less often than with LTC so I'm unlikely to hold ETH just waiting for
that. To make a long story short, my base currency for trading is BTC so
that's what I like to hodl. When an opportunity for arbitrage comes up, I take
my chances buying, transferring to another exchange, selling, then
transferring the BTC back. Successful trading is predicated on the
probabilities being in your favor and a >5% arbitrage spread, usually (not
always) works out. At least it works out enough to make it worth your while.

~~~
SilasX
LTC was just an example of a cryptocurrency; I was asking about the strategy
in general.

~~~
nathanasmith
In that case, then yes, it is a good strategy. Find a currency you like
holding and have some of it on as many exchanges as you want. When the price
gets out of whack, sell on one exchange and buy on the other. Square up when
it's convenient.

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stzup7
Would be great to be able to filter some exchanges. Personnally I would not
trade on CEX.IO

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mpetrovich
I don't see Binance on here either.

