Why do Crypto Exchanges Have Different Prices?
Why do crypto exchanges have different prices? This is one question most crypto lovers always ask themselves. Most people think the price difference is due to the quick cryptocurrency movement. It explains why certain asset costs vary between the exchanges. In this piece, we will discuss why crypto exchanges have different prices and how to use that to your advantage.
Key Reasons
Liquidity
Liquidity is an important factor for exchanges. For one to maintain and breakeven the infrastructural and administrative responsibilities, the exchange has to be reasonably active. The traders are always attracted to the exchanges where they get efficient and prompt services.
It can be quite frustrating when one has orders delayed due to a lack of liquidity. Hence, the demand and supply levels of a particular token on exchange plays an important role in what becomes the ask and bid price. The ask price and bid price difference is the spread, hence, the higher the liquidity, the lower the spread, and the lower the price.
Decentralization
Just like Bitcoin, individual altcoins also have one single network. There is no regulated or centralized pricing system. The bitcoin price in different exchanges is based on the economic and trading factors of supply and demand.
For exchanges, the factors might always vary from time to time although the variation will always fall within the given ranges. This explains why you will always hear traders talking about the average price of a particular cryptocurrency.
Transaction Cost
Currently, there are several exchanges in the crypto industry, and participants are always involved in inter-exchange transactions. The trades always come with their fees and there are times when the fees can be huge depending on the activity level involved and the amount.
Scenarios like this do impose a financial burden on exchanges that have to be balanced out in one way or another. The most ideal method currently available is to diffuse the costs into the product pricing.
Exchange Volume
Volumes are in most cases limited since all the coins being mined have quotes from online exchanges that constitute a small set of the total coins which have been mined.
People never take full advantage of arbitrage. The cryptocurrency prices on different exchanges are based on trading and there is never an established method of pricing hence, no one is aware of the currency's cost.
The cost is usually balanced between what price one is willing to trade and that the other person is ready to part with to get the same currency. Transaction of price takes place between two individuals in an exchange after the lower and upper limits have been identified. The price is decided after that.
Can I take advantage of price differences at crypto exchanges?
For sure, it will never take you that long to figure out that it will be a financially viable idea to take advantage of crypto exchange price differences between the two trading pairs. It is what we refer to as arbitrage and there are several people who do this daily to make money in different markets.
There is a crypto price difference between exchanges of a few cents or even more at times on a particular asset on different platforms at any given time. However, this is in most cases notable with lower value assets that tend to have bigger price swings due to their low trading volume.
To get such deals, there are several tools online that will help you achieve this. When you look at different cryptocurrency aggregator websites, in most cases, they will list the data for you in the exchanges section.
Every token or coin will have exchanges it is currently traded on the list and next to the entries will be the current trading volume and the cost of the asset it was last reported trading on the platforms.
You can purchase the cryptos at a lower cost on one exchange and flip them on a higher-priced market at a profit. However, in most cases, the profits will be very small. You will only earn a few cents per token but the main idea will be to do enough for the trades to ensure they add up in value.
It is much easier to say this than have it done since several other people are looking for these deals. It will mean the window of opportunity for flipping the coins is quite small unless you want to help them for a longer time. It can be a bit tricky on some exchanges having slow transfer times. By the time you have your money confirmed to purchase coins, there are high chances someone else might have already scooped them up.
Speed is the name of the game here and if you are interested in playing the arbitrage game, you will have to take some of your time to learn how you can choose great deals and ensure you are always in the right place at the right time to make good use of them.
It is up to you as an investor to determine if the method is worth your time although it is always a possibility. When you enjoy watching the market for bargains, then it will be a great way to make yourself some small income.
However, it will always be an exhausting endeavor when you don't like watching exchange information and in such a case, you might be interested in purchasing and holding some coins and forget about the entire mess. Not every person can take advantage of the price differences at crypto exchanges.
Conclusion
To get the best crypto exchange price, it is highly recommended that you always look at different exchanges. You should do this before you purchase any cryptocurrency. With this, you can always be sure of paying the fair market value for the assets and not the inflated price. If you'd like to learn how to effectively approach this important aspect of trading, start with this great read on finding the best cryptocurrency exchanges.