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Can one earn only converting assets with different spread?

Example:

  • buy asset Y with asset X (i.e. BUSD/BTC)
  • buy asset Z with asset Y (i.e. BTC/BNB)
  • buy asset Y with asset Z (i.e. BNB/BUSD)

and get an earn on X with spread between assets (i.e. gain BUSD).

Is this feasible (such as that spread between BTC and BNB is higher) or impossible in financial world?

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markzzz
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2 Answers2

12

This is called triangular arbitrage and is not new to crypto - it existed in the currency markets long before crypto. Note that the amount of spread must be larger than the transaction fees to make it profitable.

If the crypto markets are accessible via automated trading platforms (which I suspect they are), then this type of arbitrage is possible but quickly exploited by high-frequency trading algorithms.

D Stanley
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You are describing the theoretical financial concept of 'Arbitrage', which represents a situation where you can buy something in one market and instantly sell at another market for a premium, with no risk to yourself.

There are basically two potential causes for the appearance of arbitrage:

  • The markets are immature / with low liquidity, and there are no other traders aware of how take advantage of it. For any markets that are publicly available online, the chance of this existing these days is rare. Fractions of a penny might be available to be scooped up in some cases for a moment in time, but given the automation of trading algorithms, by the time you see theoretical arbitrage yourself as a retail trader, rest assured that the opportunity will soon 'self-correct'.

  • There are hidden risks or costs that you are ignoring or discounting when comparing costs. For example, does one of your exchanges have some type of ongoing problems? Maybe issues withdrawing cash, etc.? Note as an interesting example here, that some crypto exchanges accept so-called 'stable-coins' as hidden alternatives to USD - in such cases, when something like USDT becomes volatile, some exchanges may display different "USD:BTC" exchange rates, because one exchange trades only in USD, and one [semi-transparently] trades in USD or USDT. Well anyway, that's the joy of trading crypto outside of proper financial regulation, enjoy!

Grade 'Eh' Bacon
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