Cryptocurrency arbitrage is a trading strategy based on extracting profit from the price difference of the same asset on different cryptocurrency exchanges.
Traders buy cryptocurrency on an exchange with a low price and sell it on an exchange with a higher price.
Types of cryptocurrency arbitrage strategies:
Simple arbitrage:
Buying cryptocurrency on one exchange at a low price and selling it on another at a higher price.
Triangular arbitrage:
Using three trading pairs on one exchange to extract profit from price differences.
Spot-futures arbitrage:
Buying an asset on the spot market and selling a futures contract on that asset.
How cryptocurrency arbitrage works:
Finding price differences
Quick buying and selling
Locking in profits
Advantages of arbitrage:
Low risk
Quick profits
Simplicity
Disadvantages of arbitrage:
Low returns
Need for quick response
Transaction fee costs
Risks related to volatility
Need to monitor multiple markets
Risks related to transfers
For cryptocurrency arbitrage to be a profitable strategy, careful analysis, quick response, and understanding of risks are required.
