Sharkshimi: Crypto Arbitrage Trading

Cryptocurrency Arbitrage Ecosystem

Beyond cross-exchange cryptocurrency arbitrage involving multiple exchanges, Sharkshimi covers other types of cryptocurrency arbitrage services. This includes: Triangular Crypto Arbitrage - to expand search for more profitable arbitrage opportunities to execute trades within a crypto exchange; Crypto Arbitrage Fee Calculator - to help calculate and visualize fees incurred from arbitrage trading to realize actual profitability; Crypto Wishlist - to keep track of cryptocurrencies that matter! Don't forget to follow us on X (@MattELabRND) to stay ahead of crypto arbitrage alerts!

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What is cryptocurrency arbitrage trading?

Crypto arbitrage is a trading strategy that takes advantage of price differences for the same cryptocurrency across different exchanges. Unlike traditional stocks—such as those traded on the NYSE or NASDAQ—where prices are consistent across platforms due to centralized order books, cryptocurrency markets are decentralized. Each crypto exchange (like Binance, Coinbase, or OKX) maintains its own independent order book. This means that the price of a cryptocurrency, such as Bitcoin or Ethereum, can vary from one platform to another depending on the local supply and demand on each exchange.

This price discrepancy creates an opportunity for arbitrage. For example, if Bitcoin is trading at a lower price on Exchange A (e.g., Binance) and at a higher price on Exchange B (e.g., Coinbase), a trader could:
- Buy Bitcoin on Exchange A at the lower price,
- Transfer the Bitcoin to Exchange B, and
- Sell it on Exchange B at the higher price.

Because the crypto market operates 24/7 and lacks a central price-setting mechanism, such arbitrage opportunities appear more frequently than in traditional finance—but they can also vanish quickly due to competition and market volatility.

What is an order book?

An order book is a real-time list of all the buy and sell orders for a specific cryptocurrency trading pair, such as BTC/USD, on a particular exchange. It shows how much buyers are willing to pay (bids) and how much sellers are asking for (asks), along with the quantities they want to trade.

On the buy side (bids), traders place orders stating the maximum price they’re willing to pay for a certain amount of the crypto. On the sell side (asks), traders list the minimum price they’re willing to accept to sell their crypto.

For example, if someone wants to buy Bitcoin immediately, they can do so by accepting the lowest ask price currently listed. This is called "filling" an order. Likewise, if someone wants to sell their Bitcoin instantly, they can fill the highest bid price available.

In short, the order book reflects market supply and demand at various price levels, and it's how prices are determined on crypto exchanges in real time.

What is a bid-ask spread?

The bid-ask spread is the difference between the highest price a buyer is willing to pay for a cryptocurrency (the bid) and the lowest price a seller is willing to accept (the ask) on the order book.

For example, if the highest bid for Bitcoin is $30,000, and the lowest ask is $30,100, the bid-ask spread is $100.

This spread is important because it reflects the liquidity and trading activity of a market:
-A narrow spread (small difference) usually means there's high trading volume and strong competition between buyers and sellers.
-A wide spread often indicates low liquidity or less trading activity, which can make it more expensive to buy or sell instantly.

In short, the bid-ask spread is a key measure of how efficiently a crypto market operates.

Why are crypto trading fees so expensive? And how can it be reduced?

Crypto trading—especially in strategies like arbitrage—involves frequent buying and selling. This can become expensive due to trading fees, particularly when using the taker fee model. A taker fee is charged when you fill an existing order in the order book (e.g., buying at the current lowest ask or selling at the highest bid). You're essentially "taking" liquidity from the market, and exchanges charge more for that convenience because the transaction is filled instantly.

However, exchanges want to encourage liquidity—the availability of orders in the market—because it results in a narrower bid-ask spread, meaning traders get better prices and faster fills overall. To promote this, they offer a lower maker fee to traders who place new orders (e.g., setting a buy order below the market price or a sell order above it). This is called "making" liquidity, as it adds to the order book rather than taking from it.

While maker fees are cheaper, the downside is that your order isn’t filled instantly—you’ll need to wait for a matching counter-order.

Why are some potentially profitable cryptocurrency arbitrage opportunities not executable?

While on paper, a cryptocurrency arbitrage opportunity may seem profitable — such as buying a crypto asset at a lower price on Exchange A and selling it at a higher price on Exchange B — in reality, several technical and practical obstacles can make the trade unexecutable. One major reason is the issue of network compatibility during transfers.

To perform arbitrage, you often need to transfer the cryptocurrency from one exchange to another. This transfer happens on-chain, meaning it must be recorded and verified on a blockchain network (e.g., Ethereum, BNB Smart Chain, Solana, etc.). However, many cryptocurrencies exist on multiple networks — for example, USDT (Tether) can exist on Ethereum (ERC-20), Tron (TRC-20), Binance Smart Chain (BEP-20), and more.

The problem arises when the source exchange allows withdrawal on one network, and the target exchange only supports deposit on a different network. If a trader mistakenly sends crypto across incompatible networks, the funds can become irretrievable or "lost" unless customer support from both exchanges can manually recover it — a process that is time-consuming, uncertain, and sometimes not possible.

What is triangular cryptocurrency arbitrage?

Triangular arbitrage is a trading strategy that involves exploiting price discrepancies between three different currencies or trading pairs within the same exchange or across multiple exchanges. It is called "triangular" because the trade forms a loop involving three steps — and three different currencies — that starts and ends with the same currency.

Here’s how it works:
- You begin with a certain amount of Currency A (for example, USDT).

- You use Currency A to buy Currency B (e.g., USDT → BTC).

- You then use Currency B to buy Currency C (e.g., BTC → ETH).

- Finally, you use Currency C to buy back Currency A (e.g., ETH → USDT).

If the exchange rates between these three pairs are misaligned — due to supply-demand imbalance, latency in price updates, or low liquidity — you may end up with more of Currency A than you started with, resulting in a risk-free profit before fees and slippage.