#ArbitrageTradingStrategy
Arbitrage is the simultaneous buying and selling of an asset in different markets to profit from small price differences. These price differences usually exist for a very short time before being corrected by the market.
๐ง Types of Arbitrage Trading Strategies
1. Spatial Arbitrage (Cross-Exchange Arbitrage)
How it works: Buy an asset on one exchange where itโs cheaper and simultaneously sell it on another where itโs more expensive.
Example: Bitcoin trades at $30,000 on Binance but $30,100 on Coinbase. Buy on Binance, sell on Coinbase.
2. Triangular Arbitrage
How it works: Exploit price discrepancies between three currencies on the same exchange.
Example: USD โ EUR โ GBP โ USD. If the round-trip gives you more USD than you started with, there's a profit.
3. Statistical Arbitrage
How it works: Use quantitative models to identify pricing inefficiencies among a basket of assets (e.g., pairs trading).
Example: Two historically correlated stocks diverge temporarily. Go long on the underpriced one and short the overpriced one.
4. Merger Arbitrage (Risk Arbitrage)
How it works: Trade on the price difference between a target companyโs stock and the acquisition price in an announced merger.
Example: If company A announces buying company B at $100/share, and B is trading at $95, you might buy expecting the gap to close.
5. Crypto Arbitrage
Common in crypto due to varying prices on global exchanges and slower cross-border transaction speeds.
Tools like bots are often used to exploit these gaps automatically.
6. Latency Arbitrage
How it works: Use faster data feeds or algorithms to spot price differences milliseconds before others do.
Requires co-location with exchanges and high-frequency trading infrastructure.
๐ ๏ธ Tools & Technologies
Trading bots: For speed and automation.
APIs: To access prices and execute trades programmatically.
Low-latency infrastructure: Especially for latency or high-frequency arbitrage.
Data analytics: For statistical or machine-learning-driven arbitrage strategies.