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Can one earn only converting assets with different spread?

Example:

  • buy asset Y with asset X (i.e. BUSD/BTC)
  • buy asset Z with asset Y (i.e. BTC/BNB)
  • buy asset Y with asset Z (i.e. BNB/BUSD)

and get an earn on X with spread between assets (i.e. gain BUSD).

Is this feasible (such as that spread between BTC and BNB is higher) or impossible in financial world?

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    This is called arbitrage. Someone with a faster computer than you is already doing this billions of times per day. You won't be able to out-race them.
    – Criticizing Israel not allowed
    Commented Jul 26, 2022 at 13:25
  • @user253751 Someone has to have the fastest computer -- maybe it's him. :)
    – Barmar
    Commented Jul 27, 2022 at 15:08
  • @Barmar not only a better computer but it's also in the basement of the stock exchange, in the rack next to the stock exchange server, because of the speed of light.
    – Criticizing Israel not allowed
    Commented Jul 27, 2022 at 15:24
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    @Barmar if that was the case, markzzz wouldn't be here asking this question.
    – Criticizing Israel not allowed
    Commented Jul 27, 2022 at 15:43
  • 1
    Does this answer your question? Can someone make money by cycling through currencies and exchanges?
    – Flux
    Commented Jul 28, 2022 at 14:24

2 Answers 2

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This is called triangular arbitrage and is not new to crypto - it existed in the currency markets long before crypto. Note that the amount of spread must be larger than the transaction fees to make it profitable.

If the crypto markets are accessible via automated trading platforms (which I suspect they are), then this type of arbitrage is possible but quickly exploited by high-frequency trading algorithms.

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  • Re high-frequency trading and availability: It depends on the cryptocurrency. For example, with BTC, there's one "block" of transactions processed every 10 minutes, so you don't have to be fast, you just have to pay enough in transaction fees that the miners include your transaction in the next block. For ETH, this period is much shorter (12 to 14 seconds), but the idea is basically the same. However, you could probably trade in derivatives off-chain and do it that way instead (or do something like BTC's Lightning Network, which is a near-chain derivative that is eventually settled on-chain).
    – Kevin
    Commented Jul 27, 2022 at 6:09
  • @Kevin That may be true for actual BTC mining, but crypto trading between currencies through exchanges works at a basic level the same as what as referred to in this answer.
    – Grade 'Eh' Bacon
    Commented Jul 27, 2022 at 13:19
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You are describing the theoretical financial concept of 'Arbitrage', which represents a situation where you can buy something in one market and instantly sell at another market for a premium, with no risk to yourself.

There are basically two potential causes for the appearance of arbitrage:

  • The markets are immature / with low liquidity, and there are no other traders aware of how take advantage of it. For any markets that are publicly available online, the chance of this existing these days is rare. Fractions of a penny might be available to be scooped up in some cases for a moment in time, but given the automation of trading algorithms, by the time you see theoretical arbitrage yourself as a retail trader, rest assured that the opportunity will soon 'self-correct'.

  • There are hidden risks or costs that you are ignoring or discounting when comparing costs. For example, does one of your exchanges have some type of ongoing problems? Maybe issues withdrawing cash, etc.? Note as an interesting example here, that some crypto exchanges accept so-called 'stable-coins' as hidden alternatives to USD - in such cases, when something like USDT becomes volatile, some exchanges may display different "USD:BTC" exchange rates, because one exchange trades only in USD, and one [semi-transparently] trades in USD or USDT. Well anyway, that's the joy of trading crypto outside of proper financial regulation, enjoy!

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