Crypto arbitrage is a trading strategy that exploits temporary price differences of the same or similar assets across different exchanges or markets. It allows traders to buy low on one platform and sell high on another, profiting from the discrepancy.
Key Types of Crypto Arbitrage:
- Cross-exchange arbitrage: Buy on one exchange, sell on another.
- Triangular arbitrage: Exploit price imbalances among three crypto pairs on the same exchange.
- Spatial arbitrage: Take advantage of price differences in different geographic markets (e.g., "kimchi premium" in South Korea).
- Statistical arbitrage: Use algorithms to detect pricing inefficiencies.
- Decentralized arbitrage: Exploit price differences between centralized and decentralized exchanges.
Risks Involved:
- Price slippage
- Transaction and withdrawal fees
- Execution delays
- Liquidity issues
- Blockchain transfer times
Execution:
Traders often use automated bots or algorithms to detect and act on opportunities quickly. Success requires multiple exchange accounts, sufficient capital, and a solid understanding of crypto markets.
In short, crypto arbitrage capitalizes on market inefficiencies, but while it can be profitable, it demands speed, precision, and risk management.