Arbitrage trading is a strategy that exploits price discrepancies of the same asset across different markets or platforms to generate risk-free profits. Traders buy the asset where it’s priced lower and simultaneously sell it where it’s priced higher, profiting from the difference. Common types of arbitrage include spatial arbitrage (across different exchanges), statistical arbitrage (based on historical price relationships), and triangular arbitrage (in forex, using discrepancies between currency pairs). This strategy relies on speed and efficiency, often using automated trading algorithms to identify and execute opportunities within milliseconds before the price gap closes. While arbitrage is generally considered low-risk, challenges include transaction fees, execution delays, regulatory restrictions, and liquidity issues. In efficient markets, these opportunities are rare and short-lived due to high competition. However, in less efficient or emerging markets, arbitrage can still be a viable strategy. Successful arbitrage trading demands technological infrastructure, precision, and rapid decision-making capabilities.

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