Online Arbitrage: What Is It, Can You Make Money With It?

Make Money with Online Arbitrage

Online arbitrage is a kind of reselling activity where online traders research product prices, purchase merchandise from sites that offer them cheaply, and resell at a higher price elsewhere. The online merchant often pays for the merchandise with cash up-front and the resale usually happens within days or hours from the time of purchase. It doesn’t wait for months.

Online arbitrage is almost similar to retail arbitrage save for the fact that in retail arbitrage, the source of the merchandise is virtually always a brick and mortar shop such as an outlet store. The reseller buys a product, transports, stores, and often sells it terra firma. There are lots of logistical costs involved. On the other hand, online arbitrage relies on an online source of merchandise, meaning that the resellers can time the purchase of merchandise to coincide with periods of increased demand and, therefore, minimize logistical costs and losses associated with buyers not buying products.

How Online Arbitrage Works

Online arbitrage relies on three conditions:

1. An item doesn’t trade at the same price in all its markets

2. Two products with a similar value do not trade at the same price

3. A product with a future known price does not trade at its future price currently.

That means if you intend to resell a camera at ebay, you need to buy it from another website at a lower price – say Pixmania or Amazon. You sometimes might not have money to buy a digital camera from Pixmania, but you actually do not need to buy it beforehand. It might be a tad bit too risky, especially if no one was willing to buy your camera from ebay – In which case you would end up with a camera you did not want.

Prudence demands that you put the product in an auction even before buying it yourself. Put it in auction with a preferred reserve price, and once a purchaser buys it, you’ll order the product from the other site. Youll then proceed to either ask the product be shipped to your personal address or reemail it to the purchaser. You may also set the 3rd party shipping address on Pixmania so that the product is directly shipped to them.

The rule of thumb is that you must buy the products at a lower price than the one you intend to sell if you are to make a profit. Do your homework and find out where to buy the products and which products to buy to sell at a higher price.

Fortunately, there are several arbitrage websites that give lists of websites you can purchase from. The websites compare prices for you and recommend a rich variety of different types of products. But you must always keep in mind the destination market’s prices in mind so as to get a glimpse of how much in profit you can make.

It is also noteworthy that choosing a product category is pretty difficult for many upstarts. It requires you to understand consumer patterns and behavior in online purchases. And understanding the formula of knowing consumer patterns and behavior takes a lot of time and requires a lot of patience. It isn’t something you can grasp overnight. Thankfully, you can learn it over time by observing prices and sales regularly.

Toys are a frequent and prudent choice for arbitraging. During Christmas and birthdays, and other occasions, there is increased demand. According to experts, it is important to source products in sectors you are sure will impress the market. That means you need to keenly and thoroughly study your target market. However, it is also important to note that restrict your product category so much could mean that you miss potentially lucrative opportunities in other places. Therefore, if you can, spread your net wider to hunt for deals across a wide variety of products.

And which online stores do you use to source for items for resale? Some seasoned arbitragers advise that you source your products from reputed clearances such as big supermarket chains such as Walmart, Sainsbury, Tesco, and Asda. But other arbitragers give these stores a wide berth arguing that every other arbitrager is wont to use and suggest budding arbitragers head to niche stores.

What makes matters sweeter is the fact that there are online applications and tools that can help you to find arbitraging opportunities.

How much would you need to invest? The most attractive thing about online arbitrage is the low entry cost. Of course you need some financial investment to buy the stock, but this is a few hundreds of dollars, and not thousands. In fact, you could identify products in one site, say ebay, find a buyer in Amazon, then buy it from ebay and sell it at amazon. That does not require you to have money upfront, you only need to be diligent in search for sources of merchandise and the market.

The best way to have an edge on competition in online arbitrage is to look for ways to boost your return on investment (ROI) by purchasing your products at a lower price. You can also upgrade shipping. It is smart to buy the minimum to get free shipping. The money you save on free shipping can increase your return on investment and help you buy more inventory.

What makes matters sweeter is the fact that there are online applications and tools that can help you to find arbitraging opportunities.

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