Why Do Crypto Exchanges Have Different Prices?

TL;DR

• Crypto exchanges have different prices for cryptocurrencies due to liquidity, transaction fees, regulations, and order book differences.
  
• With varying prices on different exchanges comes arbitrage opportunities. That is, buying low on one exchange and selling high on another. This requires expertise and automation tools to account for fees and market volatility.
  
• Rubic is a DEX and bridge aggregator that enables you to find the best rates across 220+ exchanges and bridges helping you maximize your profits.

How can different exchanges have different prices for the same cryptocurrencies? This is one question that troubles most people, but is a common phenomenon. For some people it might offer a great opportunity for arbitrage; on the contrary new traders may lose on potential profits due to price differences across platforms. But what exactly is the reason behind the variation? The moment you understand how different factors influence the price of a cryptocurrency, you will get your answer. So let’s dive deep into it.

Key Reasons Why Exchanges List Different Prices

Several factors contribute to the price variations you see across crypto exchanges. Here are some of the major reasons for creating the discrepancies:

Liquidity

Imagine a market where there’s only 1 person selling a given asset versus 100 people selling the same asset. The market with only 1 person selling means you have to buy it at the price that person sets, whereas the market with 100 people implies greater likelihood of getting to buy at varying price levels. As such, the more buyers and sellers present (represented by total liquidity), the more stable prices tend to be. Conversely, exchanges with lower liquidity (fewer buyers and sellers) can experience severe price swings due to fewer participants influencing the market. Keep in mind, this analogy is for centralized marketplaces. In decentralized markets (on DEXs), you are trading through a liquidity pool, in which price is determined by the ratio of supply of the two tokens in the pool. Learn more about liquidity pools here.

Transaction Costs

Every exchange charges fees for buying and selling crypto. These fees can vary significantly, impacting the final price users pay. An exchange with lower trading fees might offer a slightly lower price for Bitcoin compared to one with higher fees.

Regulation and Geography

Crypto regulations differ across countries. Some exchanges might operate in regions with stricter regulations, influencing how they price crypto assets. Additionally, geographic location can play a role. If there’s a surge in demand for a specific cryptocurrency in a particular region, the price might be higher on exchanges serving that area. In times of peak demand, prices for Bitcoin and Ethereum have varied significantly across the world as there are limited capacities to access these cryptos.

Order Book Discrepancies

The order book on an exchange displays buy and sell orders for various cryptocurrencies. Slight differences in these order books, like the highest buy order (bid) and the lowest sell order (ask), can lead to price variations between exchanges.

Market Manipulation (Though Less Common)

In rare instances, some exchanges might engage in manipulative practices to influence prices for their own benefit. However, this is heavily scrutinized and can have severe legal consequences.

How to Check and Compare Crypto Prices on Different Exchanges

With this knowledge in hand, how do you actually compare crypto prices across different platforms? Here are some ways to find the differences (i.e., potential profits):

• Crypto Price Tracking Websites: Websites like CoinMarketCap and CoinGecko aggregate live crypto prices from various exchanges, allowing you to compare them side-by-side.
  
• Crypto Exchange Aggregators: Crypto exchange aggregators like Rubic make it extremely easy to evaluate exchange rates across hundreds of DEXs simultaneously. Rubic even has a MetaMask Snap (an extension to your browser based MetaMask wallet)  for finding the best prices of different cryptocurrencies across 200+ DEXs.

How to Profit From Price Differences Across Crypto Exchanges: Arbitrage Opportunities

Now, let’s get to the exciting part: profiting from these price discrepancies! This practice is called crypto arbitrage, where you exploit price differences between exchanges to make quick gains. There are two most popular types of arbitrage:

• Cross-Exchange Arbitrage: This is the most common type. You buy a cryptocurrency on an exchange where the price is lower and then sell it immediately on another exchange where the price is higher. The profit comes from the price difference minus any transaction fees incurred.
  
• Triangular Arbitrage: This involves a three-legged trade exploiting price inefficiencies across multiple cryptocurrencies. It’s more complex than cross-exchange arbitrage and requires specialized tools and quick execution. Experienced traders often use algorithmic trading to execute triangular arbitrage.

Rubic: Aggregating Crypto Exchanges for the Best Rates

While arbitrage sounds lucrative, it’s not without challenges. Identifying opportunities, transferring funds quickly between exchanges, and minimizing fees require expertise and automation tools that aren’t easily built up. Here’s where Rubic comes in. Rubic is a decentralized exchange aggregator that allows you to swap cryptocurrencies across multiple exchanges, finding the best rates automatically. This eliminates the need to manage multiple accounts and simplifies the arbitrage process. You can choose from an ecosystem of 200+ DEX and 20+ bridges and 15,500 tokens.

Conclusion

The price for a given swap pair can vary from exchange to exchange depending on multiple reasons. However, understanding the reasons can help you find the best opportunities and make informed trading decisions. Remember, crypto markets are dynamic, and prices can fluctuate rapidly. While arbitrage can be a profitable strategy, it also carries inherent risks. Always factor in transaction fees, market volatility, and the potential for sudden price movements before taking the plunge.

Compare crypto exchange rates on Rubic and optimize your trading strategy today.