Arbitrage is a strategy based on price differences between exchanges, markets, or trading pairs. Unlike traditional speculation, arbitrage eliminates uncertainty: if the transaction is calculated correctly, the risk is minimal.
1. Key types of arbitrage
Exchange arbitrage
The price of a single asset can differ across platforms. For example, BTC may cost $66,500 on Binance and $66,800 on Kraken. Buying on the first exchange and instantly selling on the second yields a profit.
Triangular arbitrage
Within a single exchange, price inefficiencies can be found between currency pairs. For example:
- Buy BTC for USDT
- Convert BTC to ETH
- Sell ETH for USDT
If you choose the right moment, the difference in exchange rates will yield profit without leaving a single platform.
Futures and spot arbitrage
The futures market and the spot market for cryptocurrencies often have discrepancies in asset prices. For example, during strong movements, the price of a futures contract may be inflated compared to the actual price of the asset — this is an opportunity for arbitrage.
2. Tools for effective arbitrage
- Quick liquidity: arbitrage trades require instant execution, so it’s important to work with exchanges that have high trading volumes.
- API trading: automating orders allows capturing price discrepancies in real-time.
- Low fees: high trading activity leads to significant costs in fees, so choosing an exchange with minimal charges is critical.
3. Risks of arbitrage
✅ Delays in transfers – if the withdrawal of funds between exchanges takes a few minutes, the price may change. Solution: use fast transfer networks (Solana, BSC, Polygon).
✅ Reducing the spread – market participants quickly close arbitrage windows, so the strategy requires speed. Solution: using trading bots.
✅ Fees – can “eat” all the profit. Solution: preliminary calculation of all costs before entering a trade.
Conclusion
Arbitrage trading is not a magic formula, but a method of extracting profit from systematic price discrepancies. For the strategy to work, one must instantly analyze the market and act without delays.
