Individual crypto exchanges may have ‘order books’ consisting of differing proportions of buyers and sellers. This could lead to some platforms costing consistently more or less, to buy a cryptocurrency.
For example, at the time of writing, buying one Bitcoin costs ₹34.25 lakh on WazirX, while the same costs ₹32.8 lakh on Coinbase. However, users could sell at corresponding price levels as well. This is why the price difference can be maintained without ‘price arbitrage’ by investors — making it less profitable to buy cheaper Bitcoin on Coinbase and then sell it on WazirX.
Simply put, price arbitrage happens when a person buys a cryptocurrency where it’s cheaper and then sells it where it is costlier, to profit from the price difference. But factors such as fees and currency conversion costs end up equalising the effective price. This ‘spread’ between buying and selling prices is largely down to market demand, but a sliver of profits from here go towards the exchange, as exchanges themselves hold vast amounts of coins.
Read More: It’s not just tax — here are other fees that crypto traders need to watch out for
