Arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms.
In cryptocurrencies, arbitrage is difficult - if not impossible to profit from due to the large transaction costs of buying and sell on the different exchanges. Some exchanges have fees in excess of 3%. This means that the difference in price between exchanges would have to be greater than the transaction cost in order to profit. This also does not take into account the risk of price movement in the time it would take to transfer funds between exchanges, making the ability to profit from arbitrage impossible for the retail investor.
While "arbitrage" may be intuitively associated with "sabotage" to the uninformed, the occurence is not a result of greedy price manipulation. The difference in price between exchanges can be simply justified by the separation of market depth creating an indipendantly operating order book. Essentially, this is an individually performing market with a unique price spread.
In order to determine the most visually accurate price, I have averaged the asking price of these six exchanges:
This plotted line can be overlayed on top of any XRP/USD price from any given exchange in order to view the variance from the average in real-time, or you can hide the underlying chart to view only the average of the six exchanges as demonstrated in the chart above.
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After browsing your profile, I think I know where you're coming from. Yes, trading in Australia is a pain and a costly thing to do.
I have moved away from AU-based exchanges a few years ago. This is the very reason why crypto do not thrive as quickly as other Asian counterparts, there is just too much complacency and lack of competition down under. Everyone is happy with charging/paying a 3% fee while you can get 0.01 - 0.1% fees in Asian exchanges.
KesterWong
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Grant, I would beg to differ.
First of all, you ought to base your analysis on the biggest markets, which I do not see the inclusion of Bithumb (19% market share). The point I am trying to make is that XRP is more likely dominated by the KRW/XRP pair, than the USD/XRP pair.
Arbitrage is not any more difficult to make than fiat, to each their own. I would say that there are pros and cons in doing cryptocurrency arbitrage and fiat arbitrage.
Yes of course, everyone should be aware of the highly volatile nature of crypto currencies, but it is also the speedy transaction time that makes the arbitrage opportunity so appealing. Another thing is that the fee is not any higher than other online brokers. In fact, crypto trading fees are so much more affordable than the conventional broker fees, another appeal that drives the crypto mass adoption.
Good article, and a sound idea nonetheless. I am just baffled that you've included all the risks and cons involved in doing crypto arbitrage, but did not include a single bit of pros in there.
I have moved away from AU-based exchanges a few years ago. This is the very reason why crypto do not thrive as quickly as other Asian counterparts, there is just too much complacency and lack of competition down under. Everyone is happy with charging/paying a 3% fee while you can get 0.01 - 0.1% fees in Asian exchanges.