# **Arbitrage Trading Strategy Guide**
## **What is Arbitrage Trading?**
Arbitrage is a risk-free or low-risk trading strategy that exploits price discrepancies of the same asset across different markets, exchanges, or forms. The goal is to buy low in one market and sell high in another simultaneously, locking in a profit from the price difference.
### **Key Characteristics of Arbitrage:**
- **Simultaneous buying and selling**
- **Minimal market risk (theoretically risk-free)**
- **Requires fast execution (often algorithmic/HFT)**
- **Small profit margins (scalable with large volumes)**
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## **Types of Arbitrage Strategies**
### **1. Spatial Arbitrage (Exchange Arbitrage)**
- Buying an asset on one exchange where it’s priced lower and selling it on another where it’s priced higher.
- **Example:** Bitcoin is $60,000 on Binance but $60,100 on Coinbase → Buy on Binance, sell on Coinbase.
### **2. Triangular Arbitrage (Forex/Crypto)**
- Exploiting price differences between three currencies in a forex or crypto pair.
- **Example:**
- **USD → EUR → GBP → USD**
- If the final USD amount is higher than the initial, profit is made.
### **3. Statistical Arbitrage (Pairs Trading)**
- Uses mathematical models to identify mispriced securities that historically move together.
- **Example:**
- Coca-Cola (KO) and Pepsi (PEP) usually move in correlation.
- If KO underperforms PEP, buy KO and short PEP, expecting reversion.
### **4. Merger Arbitrage (Event-Driven)**
- Profiting from price discrepancies before/after corporate mergers or acquisitions.
- **Example:**
- If Company A announces it will buy Company B at $50/share, but B trades at $48 → Buy B and wait for the deal to close at $50.
### **5. Latency Arbitrage (HFT)**
- High-frequency traders exploit tiny delays in price updates across exchanges.
- **Requires ultra-low-latency infrastructure (colocated servers).**
