Beginner’s Guide to Crypto Trading Bots — Part 15 —Custom Arbitrage Bots
Nothing gets more complex than bots you code yourself.
Nothing gets more complex than bots you code yourself.
Custom Arbitrage Bot
Profile
Best for : All Markets
Profit Expectation : High, Short Term
Risk : Moderate (dependent on the chosen crypto itself, and your software/hardware/code)
Trading on price differences across different markets is referred to as Arbitrage. Technically all of these bots are “arbitraging” according to classical definition.
More advanced arbitrage strategies can be increasingly complicated to create and deploy, and many of them are privately developed and highly prized by their creators who tend to keep them to themselves.
Some graciously make their bots available on different trade platforms, or they launch their own private or online services which allow people to take advantage of their bots.
In order for custom arbitrage to be achieved successfully, a fast internet connection and hardware that is capable of executing code quickly is pre-requisite.
Let’s take a look at two of the most common forms of arbitrage bots:
Cross-exchange Arbitrage: The simplest bot technique is to purchase an asset on one market and sell it on another. An example : Let’s say your Litecoin bot finds Litecoin selling for $64 on Binance, but sees that Litecoin is selling for $66.50 on ByBit. It would then buy and sell as fast as possible moving funds from exchange to exchange in an attempt to capture the small bit of profit from the difference in price on different exchanges. When you have a bot that efficiently does that hundreds of times per day, it can add up quickly.
Triangular Arbitrage: Same thing, but with three assets instead of two. By taking advantage of the discrepancy between three cryptocurrency pairs, this technique usually results in a higher return of the coin that was initially used. This bot is actually similar to a MultiCoin Mode Rebalancing Bot mentioned in Chapter 9.
These strategies work best with sources of crypto are sufficiently liquid. Liquidity is crucial and usually means this type of arbitrage is done on the more popular cryptos rather than coins that may or may not have the liquidity to grease the wheels and facilitate the speed this kind of bot needs.
An arbitrage trader is competing against many other traders for small differences in price in different marketplaces. Their bot must spot opportunities quickly, move funds quickly, and execute buy/sell orders quickly. If your hardware and connection is outmatched by too many others, you can end up with a far less profitable bot.
You may be running a script/bot that is otherwise amazing, but it can be completely undermined by a slow connection or slow computer!
Advantages of a Custom Arbitrage Bot
Stable Profits No Matter the Market Condition: That is the the goal. These bots are opportunists and they only seek price differences in different markets. They are not depending on price flux of the asset itself, they are dependent on universal and ever present inconsistencies between different markets.
Disadvantages of a Custom Arbitrage Bot
Requires Top Hardware and Fast Internet Connection: You are competing against the real pros with servers, custom coded bots, and T1 internet connections. You cannot always run arbitrage very profitably if you aren’t on the latest hardware and fastest connection.
Addendum : Recently I discovered that users of Make.com can use the Binance module along with almost any other module (telegram, discord, coinbase, etc) that can possibly feed data, and we can create our own advanced “no-code” trading bots. Read more about that in the following link:
Did A.I. Just Build A Crypto Trading Bot for Me?
Last night something happened and my mind is still reeling.
Problem !!!!— I am in the USA and this seems to be limited to Binance, I cannot find other modules that allow me to set up a no-code trading. But I am actively looking. Just sharing the info because I know alot of my readers might not be in the United States, and I hope someone can benefit from this. If you make something cool, message me!!!
Continue to the Next Story in this series:
Thank you for reading!
Until next time….
Onward and Upward Everybody!
-Chris
Automated Income Lifesyle w/ Chris Morton YouTube
#tradingbotlife #trading #arbitragelife #advancedbots #trader