#ArbitrageTradingStrategy Types of Arbitrage Strategies

1. Spatial Arbitrage (Simple Arbitrage)

Buy an asset where it's cheap and sell it where it's expensive.

Example: Bitcoin is trading at $30,000 on Exchange A and $30,200 on Exchange B.

Buy on A, sell on B → Profit: $200 (minus fees).

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2. Triangular Arbitrage (in Forex or Crypto)

Exploits price discrepancies between three currency pairs.

Example:

USD → EUR → GBP → USD

If conversion rates are misaligned, you end up with more USD than you started with.

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3. Statistical Arbitrage

Uses quantitative models to find temporary mispricings between correlated assets.

Often used in pairs trading:

Long one asset and short another (e.g., Coke vs. Pepsi) when the price spread deviates from historical mean.

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4. Cross-Exchange Arbitrage (Crypto/Commodities)

Same as spatial arbitrage, but often automated via bots.

Challenge: Requires very low latency and accounts on multiple exchanges.

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5. Convertible Arbitrage

Involves buying a convertible security (e.g., convertible bond) and shorting the underlying stock.

Bet: The bond is undervalued relative to the stock.

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6. Index Arbitrage

Exploits price differences between a stock index and the underlying stock components.

Typically used by HFT firms with algorithmic execution.