[Animats]

All the US dollar exchanges with substantial volume are within 1% of each other. [1] Some of the little guys are a few points out there, but any significant order would blow the price. All the exchanges lock together within the range of the cost of trading, which is usually at least 1% when you combine buying, selling, short-selling loan, blockchain reward, and cash withdrawal fees.

[1] http://bitcoincharts.com/markets/currency/USD.html

[Veratyr]

They are right now but this isn't always the case. For example you can see just from that page that in the past 24h, Kraken reached a low of 1025 while Bitstamp only reached a low of 1118, a difference of 9%. If at that low, you'd bought BTC on Kraken and sold BTC on Bitstamp, you would have made that 9% difference.

This is the point of the strategy. Whenever they diverge for whatever reason, assume it's temporary and that they'll reconverge. Make money converging them.

[kbody]

Kraken has a horrible trading engine, I've seen a lot of examples of delayed executions (in the class of minutes), so the peanuts of earnings can be lost very easily on the immature trading engines of these exchanges.

[Animats]

Right. Arbitrage on small differences works only if you can get quick execution, before the difference disappears. If the site gives favorable execution to some customers, as Mt. Gox did, it's hopeless.

[kbody]

Hanlon's razor though. I would presume malice only maybe to Bitmex, but for most other exchanges, I think it's plainly low-quality/bad engineering.

[kgc]

Why Bitmex?

[elorant]

This would work if trades could be cleared instantly. If, for any reason, they're delayed you're taking a risk. It might turn in your favor or not.

[hkmurakami]

Is the liquidity there to take advantage of it?

[tom_wilde]

How does the engine know the direction the converge will take? I'm missing something here.. :?

[Veratyr]

The direction doesn't actually matter since you're trading both sides. An example:

Exchange 1: 1000 Exchange 2: 900

You sell 1 of exchange 1 and buy 1 of exchange 2.

Scenario 1: Exchange 2 rises to meet exchange 1, exchange 1 stays stable. You make $100 as you bought exchange 2 at 900 and its price is now 1000. You lose nothing on exchange 1 since the price hasn't changed.

Scenario 2: Exchange 1 falls to meet exchange 2, exchange 2 stays stable. You make $100 as you sold exchange 1 at 1000 and its price is now 900. You lose nothing on exchange 2 since the price hasn't changed.

Scenario 3: Exchange 1 rises to 1100 and exchange 2 rises to meet it. You make $200 as you bought exchange 2 at 900 and its price is now 1100. You lose $100 as you sold exchange 1 at 1000 and its price is now 1100. The ultimate profit is $100.

The important thing is that you trade both sides.

[whack]

The different exchanges are selling the exact same instrument. It's like having bank A offering $1.10 CAD for your USD, and bank B offering $1.20 CAD. If the spread is unusually large (eg, 9%) due to transient factors, they will definitely converge again in the future. There might be other risks involved, like counterparty risk, or fraud risk. But with a spread that large for an instrument as liquid as Bitcoin, there is no market risk.

[saretired]

The difference is 1.09%, not 9%. Also, what was the time delta between those quotes?

[tskaiser]

1118/1025 yields the multiplication factor, not the relative difference which is 9%.

[comboy]

I think I may have a better visualization for that [1]. But I definitely agree. Differences in prices come from fees and how hard and expensive it is to get cash from one exchange to another. Plus most exchanges offer preferential fees for bigger players so when you are just starting you are already at disadvantage.

One need to also consider order books not just the price difference (I also have a chart! [2]). Price difference may be 10% but there may be 0.01BTC in order book within that difference. Or if you just look at the price of the last trade, there may actually be nothing in order book to arbitrage against.

There may be some window to make money when there are really big price changes and basically those who do the arbitrage run out of money on one side (fiat is slow to move). But then you have to deal with high volatility.

1. https://data.bitcoinity.org/markets/arbitrage/USD

2. https://data.bitcoinity.org/markets/books/USD