[gibybo]

So, assume I already have Bitcoins on Coinbase and have a verified account to sell them easily. Theoretically, my plan for free money would look like this:

- Say I have 11 BTC on Coinbase.

Wire $10k to OKPAY ($25 bank fee, 0% OKPAY commission)

Send OKPAY money to BTC-E, $200 fee (2%).

- Now I have $9,775 on BTC-E.

Within ~1 second of each other, I enter a market order to buy 10.754 BTC on BTC-e for $9,775, and sell 10.754 BTC on Coinbase for $10,488.21 (after their 1% fee).

These are the real market rates at the time of this post (accounting for book depth). I make $488 with no risk other than holding the Bitcoin for awhile, which anyone holding Bitcoin does anyway.

Before I attempt to do this and find out the hard way why it ends up costing me money in the process, could someone please kindly point out the flaw in my plan?

[fchollet]

Correct, expect arbitrage is risky in illiquid markets. Here your BTC will take a while to get into your wallet after buying them on Coinbase or BTC-e (about 10 days on Coinbase). Your wire transfers will also take a few days to clear. During these wait periods the prices of BTC will be subject to wide swings.

And at last, your arbitrage profit will get severely eaten by the fees of the banks and BTC exchange platforms.

It's never easy to make a profit in an arbitrage scheme (unless you have a crushing competitive advantage such as transaction speed): if it were easy, enough people would use the scheme, bringing the price differences back to a range were turning a profit would be difficult again... so if there are significant price differences between exchanges, it's a signal of arbitrage difficulty.

[gibybo]

I already have the Bitcoin in Coinbase though, I don't have to wait for anything. It's true that the wire transfer will take time, but the value of the dollar isn't going to change much in that time. If my only risk is the Bitcoin fluctuating in that time, it seems like free money for anyone who is already holding Bitcoin and would already be subject to that risk.

[highbees]

It works, but now you have to get your cash out of Coinbase, into your bank, and into BCT-e before you can do it again.

You could also simply buy on BTC-e, transfer bitcoins to Coinbase, sell on coinbase.

It's pure arbitrage.

[skizm]

Check withdraw limits. You might have $10k+ on an account like BTC-e and have to withdraw it over several days. If you keep arbitraging you will have more and more money in an exchange that is risky (BTC-e isn't trusted because it is written by one dude Bulgaria or something like that and the owner could just close up shop at anytime and you're fucked).

Also while all your transfers are clearing bitcoin could swing one way or the other totally screwing things up (coinbase takes several days to clear bitcoin buys (not sure about sells))

[brown]

That's a classic arbitrage strategy. It works. The only reason that traditional "big" finance isn't doing it yet is that Bitcoin is too small/new.

As for risks:

http://en.wikipedia.org/wiki/Arbitrage#Risks

[Aqueous]

There's no flaw. It's called arbitrage. If enough people do it expect the gap to narrow, though.

It just takes too much time to buy bitcoins with dollars/sell with dollars on some of these exchanges, which is why this is possible.

[wispli]

BTC-e is based in an unknown city in Bulgaria and the operators are unknown. Keep that in mind when trading there. This is probably the most important factor for the prices there being so low, they could basically just take your money and run without you having any chance of getting hold of the operators.