Who wants an easy trade? A couple of weeks ago I touched on a subject that I think a lot of readers on this site are missing out on, that being Bitcoin. This is the crypto-currency that is gaining a lot of traction and just happens to be surging in price. There is something else that I want to point out that for the life of me I could never figure out why it exists, the fact that you can do arbitrage between two exchanges for what amounts to being fairly easy money.
Here are two charts that show what I mean. They are from two separate exchanges, both out of China.
First, the charts are taken from www.tradingview.com. If you go there, you will find there are several charts under the Bitcoin section so you can very easily verify these numbers at any one time, which I highly encourage you to do.
You will notice the bid/offer in the lower center of the screen. Here are the same charts where I have enlarged the bid/offers for both... Because this is all about easy:
The first chart has the bid/offer at 7105.00/7109.00 with a 4.00 spread. The second has a bid/offer at 7111.07/7113.21 with a 2.14 spread. This is the world's easiest trade. You buy the first at 7109 and you sell the second at 7111.07. Then, and since this is easy, you go about your day doing whatever you would like to do. Eventually, the rates merge and are equal. You pocket the difference between the buy from the lower exchange and the sell from the higher exchange, which in the case of this particular trade was 2.07.
When I was first introduced to Bitcoin by a friend of mine a little while back, he sent me to one of the two exchanges above. Clumsily, it took me a second to really see what I was looking at. Because of that I went to several sites. I kept seeing listings of the rate but they were always off from each other, if, but, a few dollars.
Being a seasoned trader, I pounced... Just not on the trade. I called my friend who was trying to introduce this to me to figure out why there was such discrepancies between the exchanges. After all, it had to be too good to be true. My friend studied mathematics at UNM so he is somewhat savvy in a few things. He searched everything that I was searching but could offer no reasons why the discrepancies were the way they were.
When I explained what was going on, and how you could arbitrage between the various exchanges, all sorts of light bulbs were turning on for him. To me it was glaring. I have been trading since 1990. He is fairly new to this himself.
By the end of the day, I had accounts opened up in several exchanges around the world. It took me a minute longer to figure out how to change money into Bitcoin, the only crux that is keeping Bitcoin from going truly mainstream, I believe - there are ATMs in my city, plus you can push funds through some places via PayPal.
Once I was fully operational I put on trades as quickly as I got the coins into the accounts. And then I waited. And waited. I figured out what the "catch" was: Time.
The first, most glaring thing any seasoned trader will point out is that the profits were $2.00. That does not even buy a cup of coffee anymore. True, I will concede that. However, the time it took until I was able to pull out that first trade, which in my own initial trade was about $2.00, was less than a day.
But, the math is there. First, the profit on this trade listed above is 0.2%, as in 2/10ths of a percent. Tiny. However, you can employ leverage. The exchanges allow up to 20-times leverage. I do not recommend you go full throttle on this. Bitcoin moves. Fast. Just spend some time watching the screen. That 20-times leverage adds up to the one side of your trade that is on the "wrong" side of the move. You also have to keep in mind the reason why you are putting this trade on is that there are discrepancies between the exchanges for the exact same instrument. Those spreads may also widen. And, they move at the same time. Again, I stress, do not go full throttle with the leverage. I implore you.
Given a comfortable leverage level, you can pull in this kind of trade nearly every single day. Still, you may be scoffing at two things. First, these exchanges are in China. Myself, I have no problem with that. The irony about the exchanges in China is that the entire crypto-currency thing is supposed to be 100% anonymous. When you go to open up an account in China, be prepared to offer up a lot of information to the Chinese government. In fact, I would say that the Chinese government may know more about me than the C.I.A and the F.B.I. combined. And, I may, or, may not have been, previously affiliated with at least one of those organizations.
The other thing is that the trade is for $2.00.
I have a solution to both of those issues. Here is a simultaneous chart from two exchanges in the Western Hemisphere, both priced in USD and totally anonymous:
The first exchange is quoting 1177. The second is quoting 1188. There. That is $11.00. Far greater. But, time is the issue, again. Chinese exchanges are the biggest in the world. The second largest area is Japan. Those two countries dwarf the rest of the world's volume despite your reading the banners on the websites explaining that they are the world's biggest.
The other problem is that Bitcoin is still fairly new. Also, there are only $25 million coins in total. But, you can trade in partial coin size, so that total size amounts to nothing. The market capitalization of all the coins just hit $1 billion. So, the whole thing has a way to go. However, governments are now legalizing crypto-currencies. This is legitimizing the process.
My thinking is that if more individuals get involved with the process, the spreads between the exchanges may narrow. But, and this is the reason why I am telling people about this, the time that it takes to get in and out of a trade would be smaller with more players in the market. From what I have found these opportunities are frequent around the world. Also, the exchanges trade 24-hours a day and are open over the weekends. They never close. So, the opportunities are always there. And, because these exchanges are open on the weekends, I tend to see a lot more spreads between the various exchanges. Simply, volumes are lower.
I have been making this trade often. But, you have to be on it watching for the spreads to come with each other. It takes time. Sometimes it takes a day, or tow. I have time. But, I do not have all day.
Disclosure: I am/we are long ARBITRAGE BETWEEN BITCOIN EXCHANGES.