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Buy the Rumour Sell the News

Buy the Rumour Sell the News

In cryptocurrency trading and trading in general, investors often buy the rumour and sell the news. This is usually because prices tend to rise as a rumour spreads and then drop when the actual rumoured event takes place.

In the simplest possible terms, a buy the rumour, sell the news occurs when traders buy into an asset, be that a stock, commodity or crypto on the breaking of a rumour and ride a gradual rise in price up to the point where the news actually breaks.

A buy the rumour, sell the news or also known as a buy the hype, sell the news strategy sounds rather counterintuitive but tends to be the case in most instances, especially in financial markets. 

Buy the rumour, sell the news works as follows

Traders hear a rumour about a positive future event and this rumour gets them buying in order to cash in as the price rises prior to the announcement. 

The event happens as expected and then the price starts to drop and by then most smart traders are already out and have taken much of the profit out too. 

Buy the rumour, sell the news makes very little logical sense but turns out to be the case a lot of the time.

 

A fictitious example of how buy the rumour, sell the news could look

Let’s imagine a fictitious scenario and use a company like Apple and Apple stock as an example to illustrate how buy the rumour, sell the news works.

Imagine that rumours start circulating about a brand new foldable iPhone that people say will be announced in a few month’s time by Apple. 

It will be a game-changer for the iPhone lineup and give Apple a foldable phone to compete with Samsung and its foldable smartphone. 

As the rumours grow, screen renders appear around the internet and on social media, the price of Apple stock rises in anticipation of the official announcement. 

A few months later Apple announces its brand-new foldable iPhone to much fanfare and applause. 

At this point, the price of Apple stock will likely begin to drop. 

Now, this makes no logical sense as the rumour turned out to be true and therefore the price should continue to rise and not fall as there will most likely be a huge amount of sales of the new foldable iPhone. 

This is however how markets tend to react and that is what counts in the end if you are a speculator/trader. 

It is worth noting that typically, this drop in price tends to be temporary.

 

Timing is everything when it comes to successful trading

Due to this buy the rumour, sell the news phenomenon, clever traders get in when the rumour surfaces or perhaps even before the rumour leaks if they have a hunch or an early indication and then they sell shortly before the news is released, hence buy the rumour, sell the news. 

If this is predicted and executed precisely the trader can ride the rise, take a profit and get out before the price drops. 

The primary reason why the price rise occurs just after the rumour is that traders are already buying into the future event that has actually not yet taken place and when the event does occur traders have already taken the profit during the rumour period.

Think of it as the profit being delivered before the event and not after. 

If the news happens to be even better than expected traders may often continue to hold for a little longer and squeeze out a little more profit as new buyers can often drive the price even higher.

 

The reverse can also be true

Rumours of a negative event can sometimes drive prices down and then when the negative event does not come to pass the negative sentiment reverses and the price can begin to rise again. 

A kind of sense of relief price rise when the expected bad event didn’t actually end up happening. 

This reverse negative rumour situation can also allow smart traders to profit.

 

Some general pointers on how traders can use a buy the rumour, sell the news strategy

These are of course not exact or a complete list but can provide some examples of buy the rumour, sell the news strategies

  • Buy positive events that occur without a rumour – when a positive event occurs unexpectedly it could be good to jump in and ride the price increase
  • Buy on positive rumours – when a positive rumour breaks jump in and ride the price rise up to or just before the point where the news actually breaks
  • Sell on negative rumours – do the exact opposite of the above, sell on negative rumours and buy when the news breaks
  • Buy before any possible negative event is about to occur – and ride the possible price rise
  • Use a stop – for a situation in which an event does not occur in time as it’s possible the price will drop and you can limit any losses
  • Do your homework and be fully prepared for things to go wrong – nobody really knows what will happen with any level of certainty so it’s best to exercise some level of caution when it comes to trading and speculation

 

A possible example of buy the rumour, sell the news in crypto trading

When Coinbase listed in April 2021 on Nasdaq, Bitcoin prices had been rising significantly before the listing took place and reached a high of almost $65,000.

Following the Coinbase listing, Bitcoin lost almost half of its value in a matter of a few months. This could certainly be explained by a buy the rumour, sell the news situation although it’s impossible to say for sure.

 

Conclusion

Buy the rumour, sell the news is a very well-worn expression in financial markets and with just cause. 

Very often price rises and drops can be expected to some degree and this is where smart traders are able to jump in and out of assets, be they stocks, commodities or crypto. 

These traders through their timing and knowledge have a feeling about what to buy, when to buy and when to sell based on situations like buy the rumour, sell the market.

Smart traders will often take much of the profit out of the event prior to the event taking place, i.e. they have already been there and taken the bulk of the profit before later comers show up to enjoy what’s left of any profits still sitting on the table!

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HODL Explained , hold on for dear life on the roller coaster

HODL Explained

HODL is a term very commonly used by cryptocurrency investors and refers to a person holding on for dear life in a bear market

The world of crypto uses a huge amount of slang when compared to other technologies from the past such as personal computers or the internet. 

Both have had their fair share of course, like WYSIWYG, which stands for What You See is What You Get on a screen as an example. 

Yet, crypto is full of strange words and acronyms and it’s only just over 12 years old. 

It’s likely that in the future there will be dictionaries dedicated to the strange and wonderful language of crypto. 

Today we’re looking at the word HODL which originated from a misspelling of the word HOLD.

 

The origins of the now-famous HODL

The word HODL came into being by accident when a BitcoinTalk user by the name of GameKyuubi wrote on the thread “I AM HODLING” on December 18 2013

GameKyuubi wrote:

I AM HODLING

“I type d that tyitle twice because I knew it was wrong the first time. Still wrong, BTC crashing WHY AM I HOLDING? I’LL TELL YOU WHY. It’s because I’m a bad trader and I KNOW I’M A BAD TRADER.”

And so it was that the word HODL suddenly came into being during a drunken, self-deprecating rant and is now a well-used term in the crypto investment world. 

HODL has taken on so much significance in the crypto community that December 18 is known as HODL day in homage to the day that the “hodl” post was now famously written and yet another crypto legend and acronym was born.

Since those early days when the word HODL just meant holding, the term has evolved so to speak and the crypto community converted HODL from a simple spelling mistake to the acronym 

‘Hold On for Dear Life’ very much describes the roller coaster emotion behind hodling.

 

So what is hodling exactly?

In the simplest terms, it’s when a person holding crypto holds on for dear life during a downturn in price and refuses to sell even as the price continues to plummet. 

It is an investment strategy that is also known as buy and hold in traditional investment circles.

When we talk about hodling we are looking at a buy and hold strategy and are effectively talking about holding onto crypto although it could also be a stock for the long-term regardless of the prevailing market volatility. 

The idea being that over the long term investment assets tend to trend upwards and so just by hodling and riding out the bumps we should in theory still come out ahead and often tends to be the case.

Those that are highly experienced traders be that in crypto, stocks or other commodities can strategically and cleverly ride the bumps and profit with the goal to get in and out at the exact right time as often as possible. 

There are no guarantees of course but it is at least possible with enough knowledge and risk tolerance. 

On the other side of this coin are the completely inexperienced investors who have bought into a crypto or other asset and are tracking the price daily. 

The moment the crypto or asset starts dropping in price they panic and may sell off all or part of their holdings in order to stem the losses. 

Inevitably though, many times, prices level off and after some time may start to climb again and even end up higher than when the storm hit leaving those that sold rather frustrated. 

For this category of investor, a hodl strategy could make more sense as long as they stick to holding on for dear life no matter what happens. 

Of course, it’s easier said than done but is probably a wiser overall strategy when compared to panic buying and selling which rarely ends well for anyone!

 

There is another hodl which is actually a crypto token

It’s worth noting that there is an actual cryptocurrency token called HODL.  That HODL operates on the Binance smart chain and shouldn’t be confused with the general crypto term HODL that we are speaking about here.

 

Knowing when it’s time to HODL

When we look at long-term investing or hodling in general we have to make a clear distinction between traditional investing, blue-chip stocks like Apple, commodities or even FIAT currencies and crypto trading. 

While nothing is of course certain and anything could indeed happen, the likelihood of a company like Apple suddenly going kaput is pretty unlikely. 

It could be a safe, if not very exciting investment for the long term as Apple is well established, is very liquid and operates in a highly regulated market. 

One could therefore buy Apple stock and hold onto it for 10 years without too much worry. 

The same cannot be said with as much conviction about crypto. 

Crypto is highly volatile and still very much in its infancy. A crypto could rise exponentially in ten years or disappear from the face of the earth with equal probability. 

This, therefore, makes crypto hodling quite different to a traditional buy and hold strategy with stocks. 

Naturally, it’s important to do as much research and due diligence as possible before making an investment decision and not having all the eggs in one basket would certainly minimise the risk. 

It’s probably fair to say that the most natural hodlers are those that believe in the long-term future of crypto and perhaps have a decent understanding of the crypto universe and how all the pieces of the jigsaw puzzle fit together. 

This can help the investor make slightly more informed decisions and keep their nerves steady as they are holding on for dear life during a freefall!

 

Conclusion

HODL is not just a bit of fun crypto folklore, it stands for an investment strategy of sorts where it could make sense to hodl and just hold on for dear life when things begin to look grim, think 2022 & 2023!

Quite possibly the storm will come to an end and things will eventually bounce back with vigour. 

Of course, nobody knows for sure and in the world of crypto with its wild volatility, it can take nerves of steel to hodl, especially when the amounts involved are significant! 

Whatever the case, it may make more sense to stay calm and hodl rather than panic sell and come to regret it later.

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oversold in crypto explained

Oversold Explained

A crypto can be considered oversold if a large amount of selling has pushed the price down over a period of time but in fact, the price does not reflect the true value, meaning the crypto could actually be undervalued and likely to go up.

 

Stock, crypto or the speculation of any other asset or commodity is neither pure science, pure art or guesswork, but rather a blend of all three. 

Nobody knows for sure where anything is going. 

In the film, The Wolf of Wall Street the trading manager played by Matthew McConaughey in the famous chest-bumping scene tells Leo Dicaprio that nobody knows where the price is going, up, down, sideways or in circles, not least the traders. 

In real life, in order to have any kind of success in trading or investing, you clearly have to have some idea, otherwise, financially at least, it will be game over really fast.

The name of the game is to somehow anticipate if a crypto or stock is undervalued or overvalued and trade accordingly.

In the very simplest of terms, a stock, crypto or other asset or commodity will either be temporarily overvalued in which case the price may correct and come down, temporarily undervalued and likely to go up or correctly valued or at fair value and not going anywhere anytime soon. 

When a stock or crypto is considered by traders as undervalued at its current price, this is known as being oversold.

 

What is oversold in crypto?

Let’s take bitcoin as an example as it’s the most well-known cryptocurrency and let’s face it, a lot of people are in it. 

Is bitcoin overvalued and the price is going to come crashing down or is it currently undervalued and likely to keep going up? 

If it’s undervalued it is oversold, literally meaning that it has been “over” “sold” due perhaps to negative sentiments which has driven the price down due to excessive selling. In fact, the price should be higher and perhaps there is an upward correction coming in which case it could be a good time to buy.

 

What is fair value?

In order to understand if a crypto coin or token is oversold or undersold, it’s helpful to know where the middle is, 

This ‘middle’ is the fair value and in the world of stocks, traders will usually make calculations based on things like earnings per share and the price-to-earnings ratio. 

These figures can help a trader get an idea of if the stock is undersold or oversold when compared to competitors in the same industry and based on this information make a decision whether to buy, sell or ignore.

 

What is the opposite of oversold?

The opposite of oversold is unsurprisingly, overbought. In much the same way it literally means that. It has been “over” “bought” and could see a downward correction.

 

How can we tell if a crypto is oversold, overbought or at fair value?

Crypto is generally way more difficult to accurately predict as it doesn’t have the history or the same traditional fundamentals that traders can use to evaluate a stock or commodity like profits, dividends, market data, economic conditions and so on. 

Crypto is highly volatile and so one of the only real indicators is past price performance, demand and supply dynamics and expected returns, looking to the future to anticipate future growth and of course some instinct for what may happen in the future. 

If we look at bitcoin again, it’s not a company per se and doesn’t actually own the infrastructure, the computers that support the blockchain and is purely a cryptocurrency and blockchain. 

So how can we determine if bitcoin is likely to go up or down in the future? 

We would need to look at bitcoin’s position and importance in the larger crypto universe, where does bitcoin fit now and how could bitcoin and its blockchain fit into the overall crypto space in the future?

How will governments deal with crypto in the future and how about its network effect? 

We could do the same with Ethereum, the second-largest crypto after bitcoin. 

Ethereum is more than a cryptocurrency, it’s an entire ecosystem. Will this ecosystem continue to be a major player in DeFi for example or are there competitors lurking on the sidelines that could knock Ethereum off its perch? 

Let’s use this example to imagine an oversold scenario for Ethereum. 

Imagine, there’s talk of Ethereum losing its hold on the DeFi space and people start selling in droves, this drives the price down. 

In fact, however, this sentiment has been total FUD (fear, uncertainty and doubt) and now Ethereum is in fact trading lower than it should be and could be likely to correct and go back up. This would be a case of being oversold. 

 

What is an oversold indicator?

There are some technical methods used by traders to try and ascertain if a crypto, stock or commodity is oversold, overbought or at fair value. 

A couple of methods used include using relative strength index (RSI) and Bollinger bands. 

The RSI indicator looks at the pace of recent price changes to try and determine if a crypto is oversold, overbought or at fair value whereas the Bollinger bands consist of lower, middle and upper bands. 

The middle band reflects the cryptos moving average position while the lower and upper bands measure and record price deviations relative to the middle band. 

A crypto would be considered to be oversold when the values shift towards the upper band, the contrary would be true if the values shift towards the lower band in which case a crypto could be showing signs of being overbought.

 

Conclusion

In the world of traditional trading, it’s difficult enough to know in which direction a stock or commodity is likely to head, in crypto it’s perhaps even more difficult. 

In its most basic form, the most important thing to be able to understand is if a stock or crypto is overvalued (overbought), undervalued (oversold) or in fact where it should be (fair value).

If you are able to determine if a crypto is in fact oversold, it could be the perfect time to jump in!

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leverage trading in crypto

Leverage Trading Explained

Leverage trading in crypto makes it possible to trade a larger amount of crypto without the need to have the full amount of funds required to execute the trade. It is a risky way of trading and a potentially lethal double-edged sword that can multiply both profits and losses.

 

What is leverage?

Let’s begin by understanding what leverage is in everyday life. 

A crowbar used to open crates uses leverage to help force the crate open. 

Just using your fingers simply wouldn’t work, the same with a wrench, if you are opening a tight bolt, a wrench makes it much easier or even possible when compared to trying to do it with your bare hands. 

This leverage is the force of your hands multiplied. So, in essence, using leverage you could create a lot more force than with your bare hands alone. 

Leverage trading has been and continues to be used in equity and commodity trading. 

Traders use leverage to allow themselves the opportunity to execute larger trades without the need for the full amount of capital but rather just a fraction of it. 

In high-frequency trading, a trader could be moving in and out of stocks or commodities where even relatively small price changes, when multiplied by way of leverage, could be profitable, or of course deadly too!

So, what is leverage trading in crypto?

Now that we understand what leverage is in everyday terms, we can get a better understanding of how leverage can apply to trading. 

In the simplest terms, leverage trading could allow you to buy and trade more than you actually have the capital available for. 

Let’s say you wanted to buy and trade €10,000 of bitcoin, the important word here is trade, you are not buying the bitcoin as an investment to hold onto, you are buying it for short-term gains with the plan to sell when the price rises. 

In this case, it would be possible to buy €10,000 worth of Bitcoin for maybe a down payment of only €1,000. 

This would be based on a 10x leverage. Now if your €10,000 of bitcoin becomes €10,500 you make a cool €500 on your €1000 (excluding fees). 

A very handsome return! On the other hand, if the price of that same bitcoin drops to €9,500, you lose €500, a 50% loss. A double-edged sword if ever there was one!

How does leveraged trading work in crypto?

Continuing with the above example, let’s say we want to use leveraged trading to buy €10,000 of Bitcoin. 

The leverage is 10x to keep things simple. This means that to execute the trade we would need to deposit a margin of €1000 (1/10th of €10,000). Think of this like you are buying a house for €1,000,000 and the bank asks for a 10% deposit (€100,000) and then lends you the rest. If they need to repossess the house and the price has dropped, the initial 10% deposit can hopefully cover any difference in price and expenses.

In much the same way the exchange asks for a deposit and lends you the rest. 

The goal of course is for the price to rise, you potentially earn 10x what you could normally with €1000. As with all investing and particularly with something as volatile as crypto, things aren’t always plain sailing. So, what happens if things go south?

The deposit you put down is what is known as an initial margin

This “deposit” is known as the initial margin. 

This is what you as the trader would deposit with the exchange in order to be able to execute a leveraged trade. 

The exchange will keep the trade open so long as the initial margin covers any losses. This is how an exchange ensures that they are not financially exposed. 

It is very important to note that you are trading here and potentially all of your initial margin is at risk. 

You are not actually owning any assets. Basically, you are trading, not investing for the long term when you are buying and selling using leverage trading. 

If you get close to the edge of your margin limit, you will get what is known as a margin call.

What is a margin call?

If you’ve ever watched films like Wall Street or the TV show Billions you may have heard them talking about a margin call and looking very stressed, it’s when the brokerage is asking for more money to increase your margin or for you to liquidate some of the equity to make more cash available. 

Now of course, if you add more money, you have more time but could also sink further into a hole. 

Leveraged trading is certainly not recommended for those with a nervous disposition! If things really go south the last resort is something known as a forced liquidation.

What is forced liquidation?

A forced liquidation occurs when the initial margin no longer covers the losses in the trade.

At this moment the exchange forces the liquidation of your account closes out the trade and uses the initial margin, your deposit payment, to cover the losses. 

In most cases, forced liquidations would also incur additional costs. 

It’s really not somewhere you want to be as a trader!

Smart traders watch their positions carefully and will manually close out a trade before a margin call or forced liquidation occurs, thereby not losing their entire margin and moving on to another trade. 

Leverage trading is far away from the cosier world of passive investing!

Conclusion

Leveraged trading is not for the faint of heart or for those with a nervous disposition, however, when used correctly it can allow significantly larger returns on investment (ROI) and not require massive amounts of capital. 

In traditional markets when trading stocks or commodities, the price fluctuations can be considered tame when compared to crypto. 

This means that leverage trading in crypto is a truly wild beast and open positions need to be monitored even more closely. 

Using leverage trading is a pretty risky strategy and could mean big wins or nothing more to show for your trade than a bruised ego and a very dented bank account! 

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crypto arbitrage

Crypto Arbitrage explained

Cryptocurrencies have grown into a mainstream phenomenon. As with virtually all types of global commodities, opportunities exist to make money but lose it as well.

Bitcoin may not be as well established as other trading assets, but it does have the advantage of being ‘open’ 24 hours a day, 365 days a year and is perhaps a little more accessible to everyday people. 

Bitcoin is global and not bound by borders or national restrictions. Bitcoin and other crypto can also be found on multiple exchanges across the globe whereas traditional assets are much more limited, although generally more robust for trading purposes. 

From futures trading, leverage and margin, to simply buying and holding, people entering into the cryptocurrency space are always looking for sure-fire ways to make their cryptocurrency grow, even beyond what its famed volatility will allow for. 

This is where crypto arbitrage comes in. Due to the volatile nature of cryptocurrencies like Bitcoin, traders can take advantage of price discrepancies across multiple global exchanges. 

Seeing as there are so many crypto exchanges and even more buyers and sellers across these markets, there will undoubtedly come a time when the price of Bitcoin is different from one market to another producing the perfect opportunity for crypto arbitrage. 

So what exactly is crypto arbitrage, and is it as easy as buying low in one place and selling high somewhere else? 

What is Crypto Arbitrage?

Simply put, arbitrage is when a person purchases an asset in one place and sells it in another to profit from a slight deviation in price between markets. 

As an example, if 1 BTC costs $30,000 on Binance but it’s currently also trading at $30,100 on Kraken, there is a $100 opportunity for arbitrage.

In this instance, if you purchase your Bitcoin on Binance and hopefully sell it quickly enough on Kraken you’ll make a $100 profit — easy enough, right? 

Unfortunately, while the mechanics are as easy as that, there is a lot more to consider before jumping fully into crypto arbitrage as a sure way to make quick profits. 

How crypto arbitrage works

As explained above, crypto arbitrage is looking for the same asset selling at different prices and taking advantage of that. 

There are mainly two types of crypto arbitrage: Arbitrage between exchanges and Arbitrage within the exchange.

The former is the most basic way to make crypto arbitrage work for you as different exchanges will have slightly different markets. However, with arbitrage between exchanges, some variations help you take advantage of price differences. 

Once you have identified the two exchanges you want to play off each other, it is time to enact the trades to make a profit. However, one also needs to be aware of the workings that can cause issues in trying to be profitable. 

It takes around 15-20 minutes for major coins to confirm the transaction. If the market price drops within this time frame, you may run a risk of generating less arbitrage profits. 

Factors like geographic location, time of day, and even different news cycles can all move the price of a coin within those 15-20 minutes and destroy your hopes of being successful in an arbitrage trade. 

Can crypto arbitrage be profitable?

Arbitrage is a well-known and established practice in the world of finance. It can be profitable. However, it will require dedication and persistence to succeed. 

Crypto arbitrages are usually quite small. You can earn profits from market differences, from about 0.2 – 2.5% ($10 to $100) every day. If you focus on around ten such spreads every day, you could make upwards of a thousand dollars per week.

However, you need to know what you are doing, and you have to be prepared with the right tools and platforms. 

If you are a day crypto trader, and there is not much market movement, you can always earn some profit from arbitrage. 

If you are persistent and quick to take action on profitable opportunities, it is possible to earn a decent profit from arbitrage. 

It will generally be a factor of just how much money you are able to put to work. Making 2% off of 500€ is nowhere near the same as 2% off of €1 million!

Crypto arbitrage comes down to awareness and speed. It is up to you to recognise the differences across various exchanges, and you need to access multiple listings at once, given that cryptocurrency exchanges operate 24/7/365, it can be very time-consuming.

Pros and Cons of Crypto Arbitrage

As with everything, there are certain pros and cons to crypto arbitrage, and a lot of it depends on you as a trader and what knowledge and access you have. 

There are indeed a lot of pros to crypto arbitrage, but it is not as simple as it sounds and many things need to be considered before jumping in. 

Pros of Crypto Arbitrage

Quick Profits

Because you can buy at one exchange and sell at another in a matter of minutes, the potential for profit in crypto arbitrage is fast. This is much quicker than traditional trading where you buy and hold cryptocurrency to sell at a later date.

A Wide Range of Opportunities

The cryptocurrency space is bursting with new markets, coins and exchanges and all of this gives rise to new potential avenues for crypto arbitrage. 

According to Coindesk, there are more than 391 cryptocurrency exchanges in the world today and these will all have a slightly different price for different cryptos.

The Crypto Market is Growing

Because crypto is still very much in its infancy and has not been totally adopted or accepted, it is not a mature and steady space. 

Due to this, there is quite a bit of irregularity, disjointing, and lack of information transfer between exchanges. There are also a fewer number of crypto traders than in the traditional markets, and thus less competition in the market, which leads to potential price differentials.

Cryptocurrencies are Incredibly Volatile

While volatility is often frowned upon in investing circles, it is the one aspect of crypto that makes it so enticing to risk-takers and traders. 

For crypto arbitrage, it also means more opportunities as there can be huge price changes between exchanges and this makes for a more lively opportunity for bigger arbitrages.

The Cons of Crypto Arbitrage

Anti-Money Laundering Rules and Restrictions

While not really a con, and quite acceptable with crypto, using multiple exchanges will often call for you to adhere to the KYC regulations that are in place. This will involve things like potentially holding a bank account in the same country where the exchange is based

Fees

This can be quite a hidden barrier for arbitrage. Because users are operating with often small profits, any fees for trading crypto, withdrawal fees, network fees or exchange fees, can impact the profitability of arbitrage, or could even lead to a loss. 

High Start-Up Capital

In order to really profit from crypto arbitrage, and make it worthwhile with the tiny profit margins there is a need for a relatively large amount of trading capital to make it worthwhile. 

Withdrawal Limits

With large trades and bigger capital amounts, there also comes an issue of withdrawal limits. Exchanges can have set limits for traders which means you may not be able to get the access you want to your profits right away. 

Slow Transactions

Crypto transactions are also susceptible to market volatility in terms of their speed and accessibility.  When the markets are on the move, the best time for arbitrage, it is not uncommon to have slower transactions, or even downtime on exchanges which could hurt profits. 

 

Things to Know and to Watch Out For

Understanding the pros and cons of crypto arbitrage will help you decide if this is the right option for you, but if you do decide to go down this route, there are a few more things to watch out for. 

A number of pitfalls can trap unsuspecting traders.

Similar Sounding Coins

The cryptocurrency space is large and constantly expanding. New coins are being created and brought to market all the time and they can often have similar-sounding names which can trick traders. 

A good example of this is the project ‘SIA’ which is an application for decentralized cloud storage solution and its symbol is very close to another project called ‘SAI’.

Even when it comes to the different coin tickers there can be issues — such as $HNC (HellenicCoin) and $HNC (Huncoin), or ($BTCS) Bitcoin Scrypt and ($BTCS) Bitcoin Silver.

Scam Coins And “Pump & Dump” Schemes

While the cryptocurrency space is certainly getting better and more regulated, there are still instances where people are being scammed out of their money. 

Many coins can come to the market with the express purpose of stealing money from investors. If you arbitrage such coins, you could get burnt. The same thing happens with pump and dump schemes where projects purposefully inflate the price of their coins only to sell high and collapse the market; this can also be devastating for arbitrage. 

A Lack of Trading Volume

Often when looking for arbitrage opportunities, you may be led to smaller, lesser-known coins with good potential for arbitrage. 

However, these coins can also lack trading volume. This can hamper large trades of the coin and lead to serious consequences such as delisting. You could avoid running into that issue by keeping an eye on the exchange order book and making sure that you see transactions happening or not.

Is Crypto Arbitrage Worth It?

Having considered all of the above, it is time to decide if crypto arbitrage is actually worth pursuing. Certainly, it is a viable opportunity, especially in the cryptocurrency space, but what needs to be understood is that it is not a silver bullet for making easy money. 

Buying a coin low, moving it across to where its price is higher, and selling it on to collect a profit sounds easy, but there are many considerations that need to be looked at. 

Dealing with crypto is still challenging and often lacks an easy user interface. More than that, the lack of full regulation means there are issues surrounding scams and schemes. 

Besides all of that, crypto arbitrage can be difficult to master and requires a lot of prior knowledge and experience, not to mention a decent amount of starting capital to ensure viable profits and some good coding chops if you are hoping to do it on a decent scale because if you are doing it manually, you are not going to be efficient. 

Crypto arbitrage is certainly an option to make money but to be successful it requires access to capital, hard work, a tolerance for risk and a thirst for knowledge. If you’re prepared to put in the work and have some skills it could prove profitable.

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