There are many risks associated with trading financial markets in general and cryptocurrencies in particular. Here are some of the risks to consider, but there are many more:
- Price of coins – for our arbitrage program to work we are holding inventory in all the coins that we trade. These coins can lose most if not all of its value at any point.
- Counterparty risk – we are holding accounts with multiple exchanges, these exchanges can be hacked or can go bankrupt with little or no advance warning. In such event we don’t know if we would be able to recover the tokens and fiat currencies we are holding there.
- Technology – any technological system could have bugs and catastrophic failures. There is no guarantee that our software is bug free.
- Hardware and Internet connectivity – computer hardware can also fail or our internet connections or connections to the exchanges we trade could lose connection. All these events could cause our program to lose money.
- Arbitrage Risk – by the nature of our arbitrage program, system tries to buy and sell a specific token simultaneously. Often enough of leg of such trade may not get executed right away. In such cases we could be stuck with an open positon, which could cause significant loses to our program.
There are many other risks involved in arbitrage and trading in general please consider these risks and only use funds you can afford to lose in crypto trading a crypto arbitrage.