Arbitrage is an advanced trading strategy that finds different markets with different prices for the same thing. Buy and sell right now at a immediate profit.
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What is the safest way to trade?
Arbitrage. It's safest because you know your buy and sell prices in advance. If you can't sell at a good price, you don't buy. That makes it pretty hard to lose money.
What kinds of arbitrage are the most profitable?
There are 2 very profitable forms of arbitrage:
- High frequency trades with small returns.
- Low frequency trades with higher returns.
Since the 1980s, High Speed Trading bots have completely dominated high frequency / low return arbitrage. There's not much opportunity there. The bots eat the feast. For traditional exchanges such as stocks, bonds, and commodities, HST is completely standardized and automated. Bots grab the profits in a fraction of a second. Humans just aren't fast enough to compete. And because the bots immediately take advantage of trades the instant they appear, the spreads stay tiny.
But there are hundreds of cryptocurrency exchanges, all with different prices. There's no standard for high speed trading, so most bots don't know how to talk to more than a few exchanges. Many prices are updated at human speed. That gives alert traders an opportunity to buy from one at a low price and immediately sell to an exchange with a high price. That's arbitrage.
Cross-exchange cryptocurrency arbitrage is lower frequency, but higher returns.
What is the best arbitrage trade?
Low frequency with higher returns
The safest and most profitable arbitrage is crypto arbitrage, specifically cross-exchange cryptocurrency arb.