Even if a trading arbitrage software assumes opposing positions in the market to take advantage of small price discrepancies while limiting interest rate risk the most common and easiest arbitrage automated trading strategy on the cryptoforex is the so called “bid bid” strategy on two different brokers.
Here is how a “bid bid” automated strategy works on two different brokers with an example.
Instead of a cryptocurrency we will use a historical case that really took place some years ago.
In the period 2008-2013 it was possible on two different Italian exchanges to trade the same bond under a unique liquidation process. It means that you could buy the same bond on one exchange and sell it milliseconds later on the second one and in the end both trade (buying and selling) were compensated under the same roof. For many years me and my partners we performed profitably what it is called a “bid-bid arbitrage”. One of the two markets was much more illiquid (let’s call it market A) than the second one (let’s call it market B) so that it was possible to place a buy order in the book of the illiquid market (first or second or third book level did not mind, these are all “scalping” techniques that just experience will teach you and that do not impact on the logical structure of the trade) just in the case the bid on the second more liquid market was higher than the first bid. If this condition was fulfilled (exemplum gratiae the bid on the market B was buy 101.80 limit) then we were running for execution on the illiquid market (let’s say buy the bond at 101.10 limit on market A). Since in market A often there were at the open consistent flows of sell orders at market (our presumption was that in the first hour of trading local banks were passing orders at market collected from customers the day before) then it was as easy as to steal in a church to purchase at 101.10 on market A and then millisecond after to strike the bid on market B at 101.80 making an immediate profit without no risk. Profits where enormous in the first days of the bond crisis in 2008 but they then started to shrink as soon as the bond and monetary markets returned back to normality.
This arbitrage opportunities still exists on the certificates and warrants markets (Germany) and on different forex and options markets worldwide. But today arbitrage is booming in the crypto market and this is the financial sector from where we get the most of our today customers. They are mostly cryptocurrency trader. A true trading arbitrage strategy is a market-neutral strategy, meaning that it is designed to profit regardless of whether the overall market will trend higher or lower in the future since it reaps profits immediately staying in the market some milliseconds. It is why cryptos are the best place to be today for abritrageurs.