How to Build a Crypto Arbitrage Trading Bot?

As of February 2023, the globalized Crypto market capitalization is around $1.16 Trillion. Approximately more than 9K cryptocurrencies are available in the marketplace, but the top 20 made up 90% of the total market in 2023.

When it comes to trading, it's quite volatile so risk plays an indispensable part in it. However, Arbitrage has been a most popularized trading technique that is utilized by traders across the globe immensely. 

If you have heard the term before - Arbitrage. It is an investment approach where traders can buy assets from one exchange and sell the asset into another, by exploiting the price differences in various markets or regions. 

Most people depend on the closed-source platform for a trading bot, but if you are tired of unnecessary security attack limitations and vectors, you want to look elsewhere. You can save plenty of money and time and run trades faster and better way rather than humans with the help of a Crypto trading bot. 

They are quite awesome to avoid superfluous tasks and trading while you are in sleep mode. Also, you can understand the market strategies via this trading bot. 

Want to know how to build a Crypto arbitrage trading bot? then this curated handbook contains step-by-step points that illustrate how to build your arbitrage bot.

Let's jump right in!...

Why Create a Crypto Arbitrage Bot?

Currently, the number of crypto arbitrage bots has been increasing drastically. According to some reports, In 2023, the cryptocurrency arbitrage trading market is estimated to be worth around $2.5 Billion - with more than 4 Million active users trading on the platform. Also, Statistics shows that the number of the trading bot has grown from less than 100 in 2018. Now it is in more than 1000. 

Arbitrage Bot trading enables traders to capitalize on the marginal differences and invest to earn profits by selling assets at a high value instantaneously. Once these discrepancies of price appear and you 'capture the arb' you have the chance to buy assets from one platform and sell into another.

Know More: Crypto Arbitrage Bot 

What are the different types of Arbitrage Trading Bot?

There are various types of Crypto arbitrage bots trading available in the crypto market. They are.,

(i) Cross-Exchange Arbitrage

(ii) Spatial Arbitrage

(iii) Triangular Arbitrage

(iv) Decentralized Arbitrage

(v) Statistical Arbitrage

Cross-Exchange Arbitrage

In this arbitrage type, investors can buy cryptocurrency on one exchange and sell on another in the next moment at higher pricing. 

Spatial Arbitrage

The investor would buy cryptocurrencies from South Korea at a low price and sell at a higher price via the spatial arbitrage method. 

Triangular Arbitrage

In this arbitrage technique, the investor would trade their funds within three more digital assets. Let's say, for example, A trader can buy BTC on one exchange. Sell it for ETH, trade ETH for ADT, and then buys back ADT - BTC. 

Decentralized Arbitrage

Investors looking to use arbitrage methodology can trade Automated Market Makers (AMM) or DEX. Such transactions can be executed through an automated and Decentralized infrastructure. 

Statistical Arbitrage

This Statistical Arbitrage bot exhibits a trading strategy via which traders use statistical, econometric, and computational methodologies to execute trades. 

How do Crypto Arbitrage Trading Bots work?

With the help of three basic functions, these arbitrage bots are executed. they are.,

Signal Generator

The functionality assists it to make predictions and track probable trades based on technical indicators of a crypto trading bot and market data. Based on the data it accumulates, it generates a buy/sell signal. 

Risk Allotment

The Risk allotment process takes the buy/sell signal from the signal generator and decides how much to buy/sell. Based on a certain set of parameters and constraints, it took these decisions. 

Execution

This functionality operates the actual buy/sell of your digitalized assets. It converts signals to API key requests that exchanges can comprehend and proceed. 

These are the basic functionalities of crypto arbitrage bot trading. 

Advantages to Build Crypto Arbitrage Bot

Speed

With the help of their unique algorithms, Cryptocurrency arbitrage bots can run at greater efficiency and speed. It proceeds gigabytes of data/second in a decentralized manner. 

Emotionless

We all know, during human trade, their decisions are influenced by their emotions. Right! So it makes some errors while making decisions, which can cause losses. With this crypto arbitrage bot - you can trade emotionless manner and can execute in any situation rationally. 

Diversification 

You can easily use a multitude of trading bots to diversify your investments and lower the risk factor in your portfolio. 

How to Create a Crypto Arbitrage Bot?

Hope you understand the plus point about the arbitrage bot. If you feel brave enough, we move to the king of the topic, that you awaiting - A step-by-step guide - How to build a Crypto arbitrage bot. 

Step 1: Pick a coding language to create the arbitrage bot

Step 2: Choose the best crypto arbitrage trading strategy

Step 3: Determine the arbitrage bot’s architecture

Step 4: Encode the Crypto arbitrage bot

Step 5: Backtest and Smart Contract Audit the bot

Step 6: Collect exchange API keys

Step 7: Deployment of the Crypto arbitrage bot.

1. Pick the Programming Language to Create the Crypto Arbitrage Bot

While developing a Crypto arbitrage bot, developers use well-known coding languages such as C, javascript, and most importantly Python. So choose the programming language that you are most familiarized with. 

Just keep in mind that you are trading with real capital. So be cautious that can’t afford to code bugs into your bot. So that you can easily hire Maticz - the leading Crypto Trading Bot Development Company to build your crypto arbitrage bot. 

2. Choose the best Arbitrage Trading Strategy

You cannot build a Crypto arbitrage bot without first knowing the algorithm that it will follow. There is no time to waste and you don't want to write a bot that you will have to refurbish. Complex trading models require time to develop, so plan onward. 

Want to get a detailed version of strategies included in the Crypto trading bot? then Read this article >> Top Crypto Trading Bot Strategies

This article can assist you to find out the best trading strategy that you need to follow. 

3. Determine the Arbitrage Bot’s Architecture

The Next step you need to follow is to establish your desired Bot's architecture. Building a robust mathematical model is important if you want your arbitrage program to be effective. Also, you will need to program the trading bot, so that it uses the right data. Some arbitrage bots may need the capability to analyze market inefficiencies, multi-data sets, and a few years' values of historical data of price.

4. Coding the necessary Features and Functionalities of the Bot

Here is the most important part to Create a Crypto trading bot: Coding. Once you know the strategy, model, and language, it is time to encode your crypto arbitrage bot. This will be a time-consuming method.

5. Backtest and Smart Contract Audit the Arbitrage Bot

Once the creation of the Arbitrage bot is getting succeed, you will have to test it. The Crypto arbitrage bot might not run properly or it might require optimization. Hence why you will like to deploy it in a test environment.

You might also require to swap your current data set for a better one or compare the execution between trading on different exchanges. After you backtest and crack all the errors, it’s time to backtest also.

6. Collect Exchange API Keys

After comparing and backtesting the execution of your trading bot on various exchanges, you need to collect API keys. Choose the crypto exchange that executed the best, login to your account, and find the API keys, so that you can connect your trading bot with your trading account.

To communicate with the Crypto exchange platform, investors use API keys to have their arbitrage bot. It's a piece of data that authenticates your ownership over the crypto exchange account. Many exchange platform permits users to customize the API key, and that bot will have full permission for decision-making to transfer, withdraw, and trade assets.

7. Deployment of the Crypto Arbitrage Bot

Finally, you are done. With a functional arbitrage bot trading now linked to a crypto exchange, you can deploy the trading bot and trade with fiat. Before using the trading bot, ensure to backtest again. You must optimize your bot regularly, so you better get used to encoding for as long as you want to remain profitable.

How much does it cost to build a Crypto Arbitrage Trading Bot?

Evaluating the cost of developing a Crypto Arbitrage Bot is always an important element of any project. The decentralized economy is changing due to cryptocurrency arbitrage algorithms. Market analysis, competitor analysis, and product design to develop and deploy various cost-driving components estimate the overall cost of creating an arbitrage bot trading. 

Here we are dividing the cost of developing an arbitrage trading bot based on various estimation aspects:

Market Data Research

The blockchain development company will assist you to analyze market data, risk prediction, and popularizing market trends in this phase. 

Design

It assists you to create an interactive and abundant interaction between the app users and the interface. 

Development

The comprehensive cost to build a Cryptocurrency arbitrage bot trading may evaluate anywhere between $10,000 to $50,000. However, you may witness significant variations in the development cost relying on real-time process aspects. 

Final thoughts

Crypto Arbitrage bots are an incredible way for investors or traders to earn an edge in the ever-evolving crypto market. It offers valuable strategies and software that can assist traders to capitalize on market inefficiencies and make the most of the investments. 

Are you the one who wants to create a Crypto arbitrage trading bot? then Maticz - the leading Crypto Arbitrage Bot Development is the perfect solution for you. We offer you highly efficient technical strategies, features, and functionalities that offer leverage smart trading resources. 

Related Article: Best Crypto Trading Bots for 2023