Now that the Nigerian economy has made it difficult for people to only rely on income from their 9-5 jobs, it has become important to get an extra source of income. One of the best ways to create extra revenue for yourself is to invest in cryptocurrency on the side, as crypto is a long-term wealth-creation tool. Although many Nigerians are now aware of some popular ways to create money with crypto like trading, lending, and staking, not many people recognize the immense benefits of crypto arbitrage trading. If you are willing to learn about it and how it works, here’s a guide to teach you how to start a profitable crypto arbitrage trading in Nigeria.
What is a crypto arbitrage?
Essentially, crypto arbitrage primarily involves you buying a crypto for a specific price and selling it for a higher price on another platform. For example, you buy Ethereum from one crypto exchange for a certain price, then proceed to sell that same Ethereum on another crypto exchange platform that offers a higher rate, which gives you your profit.
Crypto arbitrage trading is simply a crypto trading strategy where you use the slight price differences of cryptocurrencies between various exchanges to your advantage. In simpler terms, cryptocurrency arbitrage is a kind of business where you buy a digital coin from one crypto exchange platform – like Bitmama – and sell that same coin at a higher price on an entirely different trading platform.
This is feasible because different trading platforms offer you different rates, which can fluctuate depending on the condition of the crypto market.
What are the types of crypto arbitrage trading?
There are various ways to engage in crypto arbitrage trading. Here are some major types of crypto arbitrage trading:
1. Pure spot arbitrage trading
Pure spot arbitrage trading is a very popular kind of crypto arbitrage trading that is employed by millions of traders every day. Essentially, this strategy involves purchasing a token at a low price and reselling it on another crypto exchange platform at a higher price.
2. Positional arbitrage trading
Positional arbitrage trading is similar to pure spot arbitrage trading. However, the major difference is that with this kind of trading, you open positions on different exchange platforms and close them off after the price has adequately converged into profit for you.
3. Interest rate arbitrage trading
Some crypto exchange platforms allow their users to loan and borrow cryptocurrencies. For this reason, crypto arbitrage trading gives opportunities for crypto traders to gain profit. All you have to do is to borrow an asset like Bitcoin or Ethereum at a low interest rate from one exchange platform and lend the token for a higher interest rate on an entirely different exchange platform. This way, you get your profit from the difference in interest rates between the two platforms.
What do you need for crypto arbitrage trading in Nigeria?
If you plan to start crypto trading arbitrage trading in Nigeria, there are some basic things you need. Here are two major things you’d need for your crypto arbitrage:
1. Crypto exchanges
This is the first and the most essential thing you’d need to start a crypto arbitrage trading because an exchange is where you will purchase the cryptocurrency from and resell it. Note that you need to sign up on more than one crypto exchange platform to complete the trading process. That is, you have one exchange to purchase crypto from and another different exchange to sell it on.
When it comes to arbitrage trading, you do not just choose random exchange platforms. Rather, you have to consider different factors such as their security, limitations, fees, etc. When choosing an exchange platform to sell your cryptocurrency to gain profit, the major thing you should look out for is their rates. Bitmama remains the best crypto exchange platform to buy or sell your cryptocurrencies for successful arbitrage trading.
It is recommended that you invest in stablecoins like USDT and USDC for your crypto arbitrage trading. This is because stablecoins have relatively stable prices. This helps you not lose money to fast price changes due to unexpected market fluctuations.
3. Crypto price tracking tools
To successfully recognize profitable arbitrage opportunities, you have to access correct and real-time data on cryptocurrency prices. There are different legit cryptocurrency price tracking tools that can help you to observe market trends, crypto price movements, as well as historical data. Essentially, these tools allow you to identify price differences across different exchanges efficiently. Bitmama crypto price alert feature simplifies this process by instantly alerting you when there is a change in crypto price based on your custom triggers.
4. Crypto arbitrage bots or trade automation
You might consider using crypto arbitrage bots to help you streamline your crypto arbitrage trading activities and maximize your gains. Bitmama auto trade feature offers a better option. Essentially, you can create customer buy or sell orders based on custom market prices. This way, your trade is instantly executed, helping you take full advantage of market fluctuations.
5. Risk management tools
Managing your risks is very important in crypto arbitrage, just as it is in any other investment venture. You should consider using risk management tools to safeguard your capital and reduce potential losses. Essentially, these tools can help you to set trailing stops, stop-loss orders, and take-profit levels. You protect your investments when you employ risk management tools.
6. Trustworthy news aggregators
It is important to stay updated with the latest news and developments in the crypto market if you want to be able to make informed decisions during crypto arbitrage trading. Essentially, these trustworthy news aggregators will provide you with useful insights into the crypto market trends, regulatory changes, as well as technological advancements.
How to start a profitable crypto arbitrage trading in Nigeria
To start a thriving crypto arbitrage trading business in Nigeria, you have to carefully study and monitor the different prices of various cryptocurrencies on different crypto exchanges. Here are some steps to teach you how to start a profitable crypto arbitrage trading in Nigeria:
1. Understand the fundamentals of cryptocurrency and blockchain technology
Get familiar with the various kinds of cryptos, their unique features, as well as their individual applications. Also, do in-depth research on the complications of blockchain technology and understand every bit of it. This knowledge will help you make informed decisions during your journey.
2. Choose a reliable cryptocurrency exchange
To actively engage in crypto arbitrage trading, you must have access to numerous cryptocurrency exchanges. Make sure you go for reputable crypto exchanges that have a solid track record, and strong security measures, and offer you a wide range of supported crypto coins.
Bitmama is easily the best option among the crop. You should give it a try.
3. Set up different accounts on multiple exchanges
After you’ve successfully identified the exchanges you want to work with, start setting up accounts on each of the platforms. Essentially, this involves inputting the necessary personal information, going through all the identity verification procedures, and setting up two-factor authentication for better security. Here’s how to create an account on Bitmama.
4. Secure your crypto assets
Your asset’s security should be of utmost priority. Ensure that you set up strong security measures, such as using security software or hardware wallets to store your digital coins. Learn How to create a crypto wallet here.
5. Develop a trading strategy
You must have a well-planned trading strategy to succeed in your crypto arbitrage trading business. Ensure that you define your investment goals, risk appetite, and time horizon. Also, consider factors like liquidity, transaction costs, and trading volume when choosing cryptos for arbitrage opportunities.
6. Scrutinize market conditions and determine arbitrage opportunities
It is important to stay updated with the latest trends in the crypto market and determine potential arbitrage opportunities to maximize profits. Ensure that you monitor price differences across different exchange platforms and track the trading volumes of your chosen cryptocurrencies. Use technical analysis tools and indicators to recognize market trends and make educated trading decisions.
7. Execute arbitrage trades
When you recognize a profitable arbitrage opportunity, make sure you act fast and execute your trades. Transfer the required funds between the two exchanges to benefit from the price discrepancy. Don’t forget to consider transaction fees, network congestion, and withdrawal costs when placing your trades. Also, be mindful of volatility in the market.
8. Monitor and track your trades
After you execute your trades successfully, it is important to monitor and track the progress of your trades. Assess the profitability of your trades regularly and revise your strategy when necessary.
9. Stay informed and continuously learn
Since the crypto market is dynamic and always evolving, you must stay informed about the latest industry news, regulatory updates, as well as technological advancements. You can join online crypto communities, attend conferences, and interact with fellow crypto traders to widen your knowledge of crypto and learn how to trade better.
10. Fulfill legal and tax obligations
Basically, it is important to comply with legal and tax obligations in the crypto arbitrage trading business. Get familiar with the appropriate crypto regulations in Nigeria or the country you’re based and make sure you keep accurate records of your trades. Also, talk to tax professionals to figure out the tax obligations and liabilities associated with crypto arbitrage trading.
Tips to help you start a profitable crypto arbitrage trading in Nigeria
The tips provided below will guide you on how to start a profitable crypto arbitrage trading in Nigeria
1. Timing is crucial
In the cryptocurrency arbitrage trading business, you must be time-sensitive if you want to succeed. Since the crypto market is unpredictable, you have to be on your toes. The prices are always changing, and you may forfeit your gain if you waste too much time before selling your coins.
2. Look out for opportunities
Another important thing to do if you want to succeed is to be able to look out for opportunities. You must learn and understand how to buy and sell cryptos in Nigeria at the best prices. Generally, this business operates on a “first come first serve” basis. The first person to discover an opportunity will likely get more profit than others.
3. Critically analyze opportunities
This business will present you with a lot of opportunities so it is left to you to analyze them and determine the ones that are worth going for. While you stay time-sensitive, you have to also weigh your choices and opportunities well and select the most favorable option.
Risk management strategies for crypto arbitrage trading
Although crypto arbitrage trading is considered a low-risk investment compared to other crypto trading strategies, you have to still manage your risk well. Here are some risk management tips:
1. Stay informed
Stay up to date on the latest news, market conditions, and exchange policies in the world of crypto to avoid getting caught unaware of anything that can negatively impact your trades.
2. Track your trades
Ensure that you track your trades by recording all your transactions and capital allocations. This helps you to maintain clear visibility of all your profits and losses.
3. Calculate transaction costs
Always consider the trading costs, withdrawal fees, as well as other transaction costs. This is very important to ensure that they don’t eat deep into your profit.
4. Diversify your trading
While concentrating on crypto arbitrage, it is equally important to explore other kinds of trading strategies and opportunities to spread out your investment risk.
How to analyze crypto arbitrage performance metrics
Measuring the overall success of your crypto arbitrage trading business boils down to keeping records of some performance metrics. Here are some important performance metrics to track:
1. Return on investment (ROI)
Your Return on Investment (ROI) is the profit you make compared to your investment capital. A higher ROI shows that you have a successful strategy.
Drawdown is basically the peak-to-trough drop in the value of your crypto trading account. Maintaining drawdowns at a minimum helps to protect your investment capital.
3. Win rate
Your win rate is the percentage of successful trades made out of the total number of trades you made. A high win rate indicates that your strategy is very effective.
4. Average profit per trade
The average profit per trade measures the average profit made from each successful trade. Increasing this metric equates to having a more profitable strategy.
Is crypto arbitrage trading legal in Nigeria?
Yes, crypto arbitrage trading is currently legal in Nigeria. However, you have to comply with the laid down crypto regulations and function within the framework provided by the Securities and Exchange Commission (SEC) as well as other trading regulatory bodies.
What are the risks associated with arbitrage trading?
Although arbitrage trading is highly profitable and is associated with low risk, it is still not without risks. Some of the major risks include:
Sudden market fluctuations
Finally, if you want to engage in arbitrage trading, you have to use effective risk management techniques to reduce your loss and stay updated about market developments.
How much capital do I need to start crypto arbitrage trading?
The capital needed for you to engage in crypto arbitrage trading varies depending on the market conditions and trading strategy. However, it is recommended to have enough capital to absorb possible risks and engage in your trading effectively.
Do I need specialized software or tools for crypto arbitrage trading?
Although specialized software and tools can improve your efficiency during crypto arbitrage trading, they are not mandatory for it. Basic exchange platforms and access to crypto market data are enough to get you started. However, you may need to use advanced tools as you progress as they provide you with a competitive edge.
Are there any tax implications for crypto arbitrage trading profits in Nigeria?
Tax regulations concerning crypto arbitrage trading profits may vary, so it is recommended that you speak with a tax professional to figure out the precise tax obligations for crypto arbitrage in Nigeria. It is important for you to comply with tax laws to maintain an ethical and legitimate trading practice.
Do I need prior trading experience to engage in crypto arbitrage?
While having prior trading experience can be very helpful, it is not a requirement for starting crypto arbitrage trading. With appropriate research, learning, and using the right tools, it will be easy for beginners to enter the market successfully.
How can I find arbitrage opportunities in the Nigerian crypto market?
To find crypto arbitrage opportunities in the Nigerian market, ensure that you monitor price discrepancies across numerous exchanges with the use of price tracking tools. Basically, always look out for discrepancies in the buy and sell prices of cryptocurrencies and take advantage of them.
How to make money from crypto arbitrage trading in Nigeria
The key to having profitable crypto arbitrage trading, especially in Nigeria is choosing the best crypto trading exchange platform that offers you competitive exchange rates for converting your tokens to fiat money. Make sure that Nigeria has access to the exchange platform you choose. Next, you have to decide whether you want to keep your coins for a while or sell them off immediately. If you choose to keep your coins for a while, make sure you secure them in a hardware wallet or any other safe crypto storage service.
Which coin is good for arbitrage?
Crypto arbitrage can be executed using any cryptocurrency in circulation. However, the most suitable ones to use are cryptocurrencies with high volatility because they offer you more opportunities for arbitration.
Is crypto arbitrage profitable?
Yes, crypto arbitrage is profitable. In fact, arbitrage trading can be a very lucrative way to gain profits with low risk, as long as you understand how to do it right.
How much money can I make with crypto arbitrage?
Generally, the crypto arbitrage opportunities are relatively small, with gains ranging from 0.2% to 2.5% of your capital. However, if you focus on a lot of opportunities per day, you can potentially earn more than N100,000 per day.
Due to the volatile nature of the cryptocurrency market, most Nigerians are afraid of investing in it, which is understandable, to be honest. For this reason, crypto arbitrage trading must be executed with extreme care and proper risk management, even though it is a low-risk trading strategy. Although crypto arbitrage is not popular in Nigeria, you can still learn how to start a profitable crypto arbitrage trading in Nigeria by following the detailed guide we’ve provided above.
As the best crypto exchange app in Africa, Bitmama offers a secure marketplace for crypto enthusiasts. Perform activities like crypto exchange, crypto staking, and creating virtual dollar cards for online payment. Get started today by downloading the Bitmama app on Android or iOS.