Crypto arbitrage is buying crypto currency in one exchange and quickly selling it on another for higher price. The crypto currencies trade on exchanges all over the world. Some crypto currencies trade even on hundreds of stock exchanges. Therefore, the price of the crypto currency on one exchange is different from those on the other. Investors generally buy from the exchanges where the crypto currency value is low and immediately sell on those platforms where its value is high. There are no laws or regulations to govern these actions. No country has set any legal norms against crypto arbitrage so far. Also, crypto arbitrage is very much similar to the arbitrages done on capital markets. Therefore, it is completely legal.
To learn more about the legality of crypto arbitrages, you need to get a deeper understanding.
What are the different types of crypto arbitrage?
The spatial arbitrage is trading crypto currencies in two different crypto exchange or stock exchange platforms. It is the basic form of crypto arbitrage. There is a special kind of crypto arbitrage called the spatial arbitrage without transferring. This type overcomes the risks of spatial arbitrage. The risks of spatial arbitrage are transfer cost and transfer time.
The triangular arbitrage strategy is implemented in stock exchanges where there are pricing inefficiencies between crypto currencies. Let us understand this with an example. The triangular arbitrage usually works around pairs of crypto currencies, that is, two crypto currencies. Say there are two crypto currencies X and Y. And there are two crypto exchanges AA and BB. Let us assume that the value of X is high in AA and low in BB. The value of Y is low in AA and high in BB. So the trader will now buy X in BB using Y. He will sell Y in BB using X. This type is called the triangular arbitrage. Sometimes, the trader would use more than two crypto currencies as well. However, the strategy is all the same. Buying a low valued crypto in one exchange and selling it in another exchange where its value is high. A second or third crypto currency is used for buying and selling this crypto.
Things to consider before using crypto arbitrage
There are certain things you need to learn before you adopt this strategy
You need to sell the crypto currencies immediately if you are adopting the crypto arbitrage strategy. This is because; the price differences of the crypto currencies between exchanges do not last longer. The crypto companies work hard to maintain the value of their currency in the market. Therefore, they take rapid measures to change the value of their currency. So you need to act fast. Sell them immediately as you buy.
Before you choose the crypto currency and the exchange, check in the trading volume of the currency in that exchange. The trading volume should be adequate in the chose exchanges.
I have given all the required explanations on the legality of crypto arbitrage in this article. Hope my article was informative and useful.