Risk Involve in Cryptocurrency Arbitrage Exchange Development
Though it is said that arbitrage is a risk free trade, and known as the best way to make profits in the exchange market, there are still a few risk that needs to be considered before going in for an arbitrage exchange development cryptocurrency trading. Below are some of the risk you should take in to consideration before going in for this trading strategy.
Mispricing occurs when there is the presence of the term volatility. When there is the presence of more volatility, there is a huge possibility of the availability of mispricing of assets. This can be combated when market prices become stable and the mispricing opportunity disappears. When markets are calm, a high rate of mispricing can be observed and this is when traders can easily take advantage.
The presence of slippage will also be a severe risk to be taken in to consideration. Slippage can be defined as the difference that exist between the price that you expected to exist and the actual price that exists. This is a great problem in arbitrage cryptocurrency markets and can reduce a great amount of your arbitrage profit. Also remark that slippage works in correspondence with the size of your demand. The bigger the demands you make in order to take advantage of the arbitrage, the larger the slippage will also be and vice versa. Note that, if the price you got for the asset was bigger or smaller, the actual profit will witness a drop.
Most at times, cryptocurrency arbitrage exchange development only exist because of the openings of illiquidity which gives less means for traders to carry out effective transactions. There is no availability of larger firms in the currency market who are able to take advantage of the mispricing systems because they find it very difficult to get and out of the market. This system gives reasons why arbitrage crypto is a very profitable trading business for a small. The availability of low liquidity will rather give them the opportunity to trade in a competition free market which exists in big business traders.
