What Is Kimchi Premium Arbitrage? How It Works, Made Simple

When you compare prices on Korean and overseas crypto exchanges, the same Bitcoin sometimes trades at different prices. When the Korean price is higher than abroad, it is called the kimchi premium (kimp).

Trading that uses this gap between Korean and overseas prices is often called kimchi premium arbitrage. The idea looks simple, but in a real trade you also have to weigh the exchange rate, fees, transfer time, deposit and withdrawal limits and more.

1. What is kimchi premium arbitrage?

Arbitrage is a way of trading that uses the price difference that appears when the same or a similar asset trades at different prices in different markets.

In crypto, Korean and overseas exchanges each have their own independent order books, so even the same Bitcoin or Ethereum can briefly trade at different prices.

When the Korean price is above the overseas price (a kimchi premium), in theory the gap between the relatively cheap overseas market and the dear Korean market is what arbitrage targets.

2. Say the premium is 5%

Let us use simple numbers. Suppose Bitcoin on an overseas exchange is worth ₩100 million in won, and ₩105 million on a Korean exchange.

On the surface, one Bitcoin shows a ₩5 million gap between the two markets. Arbitrage is the idea of using exactly this kind of imbalance between markets.

The important point is that the ₩5 million does not simply become profit. A real trade has several costs and price moves to account for.

3. The basic structure

Simplified to the extreme, arbitrage when there is a kimchi premium looks like this.

This is the basic principle usually given for kimchi premium arbitrage. In a real market, though, the process may not end this simply.

4. The premium on screen is not your return

A kimchi premium of 5% on screen does not mean arbitrage will earn you 5%.

A real trade can involve trading fees, withdrawal fees, network costs and the cost of currency exchange. The price itself can also move while your orders fill.

5. The premium can vanish while your coin is on the way

Sending crypto from one exchange to another can take time. Depending on the network and how the exchange processes withdrawals, the time until the deposit is credited varies.

The problem is that market prices keep moving while the coin travels.

It can also grow instead. In the end, in arbitrage it matters not only how big the gap is but also how long it lasts.

6. A high premium is not automatically an arbitrage chance

Finding a coin with a high premium can look like a big profit opportunity. But a high number alone does not mean a real trade is possible.

Some coins may have deposits or withdrawals temporarily suspended on an exchange, and with thin trading it can be hard to fill the amount you want at the price on screen.

Especially for coins with very little volume, a few small orders can briefly show a huge price gap, so be careful about judging by the premium figure alone.

7. What happens to the premium when arbitrage grows?

Arbitrage tends to narrow price gaps between markets.

When buying increases in the cheaper market, its price can come under upward pressure, and when selling increases in the dearer market, its price can come under downward pressure.

This is the basic way arbitrage narrows price gaps in ordinary markets.

What to check to understand kimchi premium arbitrage

On CoinGaja you can compare crypto prices on Korean and overseas exchanges and see the kimchi premium of each coin. The premium shown is reference information about price gaps in the market and can differ from the final result of a real trade.