Bitcoin Arbitrage Is Possible, But Not The Way You’re Doing It

The Problem: Bitcoin Arbitrage Fails If You Introduce Your Own Inefficiencies in an Effort to Capture Market Inefficiencies

Whether you’re talking about Bitcoin arbitrage or silver arbitrage, the name of the game is to recognize and profit off of pricing inefficiencies-for instance, buying BTC on an exchange where someone is selling it for $X and selling it on another exchange where someone is looking to buy that much BTC for $Y, where Y>X. However, the path you take from buying the asset to selling the asset makes a difference-and some of the most common paths run the risk of bogging you down with inefficiencies that materially outweigh the potential arb you could have captured.

Capital Inefficiencies

For larger traders and funds looking to operate a strategy at scale, opening and managing crypto trading accounts at multiple venues can initially seem quite appealing: with some portion of one’s funds available at all major crypto trading venues, one can theoretically choose to trade on whichever exchange currently has the best prices available -not to mention that this puts one in a position to buy BTC from one venue and sell it on another venue when Bitcoin arbitrage opportunities arise.

Operational Inefficiencies

Beyond the actual feasibility of trading on multiple accounts, this approach to crypto markets invites acute operational headaches. Case in point: if any trader is looking to ruin their relationship with their accountant, they might consider simply dumping transaction reports from multiple crypto trading venues on their desk!

  • A trader might all the accounts open in separate tabs on a browser and feverishly check them manually, but that’s neither scalable nor sustainable.
  • A trader might engineer a single, automated stream tracking and comparing prices on all the trading venues in question, but that’s easier said than done. This kind of system requires years of time and millions of dollars to build in a reliable and secure way (trust us: that’s exactly what we built at SFOX!).

Infrastructural Inefficiencies

Finally-yet perhaps most significantly in the current market environment-are the risks of infrastructural issues that may arise from trading from accounts at multiple venues.

The Solution: A Maximally Efficient Trade-Routing System that Captures Marketwide Crypto Prices without Requiring Separate Account Management

Over the last 6 years, SFOX has engineered, maintained, and continually improved a crypto trading platform that solves the above inefficiencies through a deceptively simple model: its smart-routing order types intelligently route traders’ orders to the trading venues with the best prices, allowing them to capture Bitcoin arbitrage and otherwise secure best-price execution on their trades without introducing the problems that come from opening and managing accounts at a diversity of crypto exchanges.

Putting Capital to Work Efficiently on All Crypto Trading Venues

At the heart of SFOX’s model is the trading platform that allows traders to trade on all major trading venues without actually maintaining accounts or funds on those venues: SFOX itself connects with those venues and maintains its own funds on those venues, allowing traders to view and execute trades on all of those venues from one integrated order book while using SFOX as the actual counterparty for all the trades being executed.

Operational Unity is Operational Efficiency

A lot of operational magic happens when crypto trading takes place within a single, globally integrated ecosystem. Instead of managing multiple tabs or jerry-building a homemade system to track marketwide crypto prices, SFOX funds and traders see order-level price data from across the market in real-time, leaving no ambiguity as to where the best pricing opportunities are-and providing the necessary tools to immediately capture those prices. If a marketwide order book isn’t enough, SFOX’s UI also features a Time and Sales module that provides a real-time feed of the actual trades being made: how large the trade is, where the trade happened, and whether the order’s taker was buying or selling.

Serious Infrastructure for Serious Traders

The proof of SFOX’s infrastructure is in the numbers: 99.99% uptime since its launch in 2014. SFOX’s trading platform stays online when one or several of the trading venues to which it’s connected experience downtime; this means that in times of market volatility, if an exchange were to experience “unexpected downtime,” an SFOX trader would not be locked out of trading as a result of that outage. To the contrary: they would have the freedom to trade that volatility and potential arbitrage opportunities, if they so wished, across all the trading venues that remained online-and they’d be able to do so from a single-login account.

It’s All About Tools

Newcomers to crypto trading often warn others not to get caught “holding the bag,” referring to the risk of taking a sizable position in an altcoin, watching its price spike, and failing to sell it before the price recedes.

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SFOX

SFOX

The first crypto prime broker for sophisticated traders and institutional investors.