Arbitrage trading is a strategy where a trader profits from price differences of the same asset in different markets. It involves buying low in one place and selling high in another — almost simultaneously — to lock in a risk-free profit.
Example:
Bitcoin is priced at $30,000 on Exchange A and $30,200 on Exchange B.
A trader buys 1 BTC on Exchange A and immediately sells it on Exchange B.
The profit is $200 (minus fees).
Key Types of Arbitrage:
1. Spatial Arbitrage: Between two different exchanges or regions.
2. Triangular Arbitrage: Within one exchange, exploiting price differences between three currencies (e.g., BTC/ETH, ETH/USDT, BTC/USDT).
3. Statistical Arbitrage: Uses algorithms and models to spot pricing inefficiencies.
4. Decentralized Exchange (DEX) Arbitrage: Between DEXs like Uniswap and centralized exchanges.
Risks:
Fees, slippage, transfer delays, and changing prices can eat into profits.
Not as easy as it sounds — requires speed, automation, and capital.
It’s like spotting a phone selling for $100 in one shop and $120 in another, buying from the first and instantly reselling to the second.
