(1th-January-2020)
Few ideas to minimize the fees:
Ideally match your transaction such that the order will be executed immediately
Use exchanges with no/little crypto withdrawal fee
Check carefully the fiat withdrawal fee on the exchange
Use wire transfer instead of the credit card or the direct deposit
Use exchanges with the deposit account
Fees on blockchain or network fees
Every crypto coin is connected to a blockchain. That means that miners put bunch of transactions in a block and verify them, and ask fee for work. This fee is called blockchain fee or network fee.
Some exchanges don’t take fee for the deposit or the withdrawal of a cryptocurrency. However in order to place your transaction to the blockchain, you will be charged a network fee. For example, you would place your freshly bought Bitcoin from Coinbase to your wallet or offline storage. At the moment of writing this article, the Bitcoin network fee was less than 1 USD.
Fees on wallets
Many free wallets take a transaction fee to support development and maintenance of the wallet software. You could check the fee in your wallet settings. Moreover, if the wallet creates a new address to store your cryptocurrency, it has to be added to the cryptocurrency blockchain. In this case, the network fee occurs (see above).
Risks
There are several risks associated with the crypto arbitrage. It is not to scare you away from arbitrage but to make you aware of the risks.
Risk #1: Hacking risk
There have been well known attacks resulting in millions of stolen Bitcoins (see top five hacks here).
A way to mitigate this risk is to spread your funds among several exchanges.
Another way is to keep the amount you are ready to lose on exchanges and the rest in the cold storage.
Risk #2: Execution risk due to fast moving market or market volatility: you need to perform at least 2 transactions for an arbitrage, which ideally should be executed immediately. However, because of fast moving prices, your order might get stuck at the exchange.
That means you also have to pay a taker fee.
A way to mitigate this risk is to use a bot that is doing trading for you.
Risk #3: Movement risks between exchanges/blockchains: most of the exchanges need a few days time to validate deposit and withdrawal.
Also, this risk category includes
Wallet maintenance
Network is down
To mitigate this risk, use well known exchanges with large trading volume.
Risk #4: Price decline risk: the trading funds will decline with higher % than profit from arbitrage.
Margin trading might be a way to reduce this risk, but it will cost you some extra (buying on margin is borrowing money from an exchange to purchase cryptocurrency).
Risk #5: “Know your customer” (KYC) is posing a risk if you are just starting to trade on an exchange. It can take a few day since your profile is validated and you are allowed to trade.
Risk #6: Withdrawal limits might be a risk if you want to withdraw more funds than allowed at the exchange
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