What is crypto arbitrage?

Crypto arbitrage is a trading strategy that takes advantage of price discrepancies of the same cryptocurrency across different exchanges. Essentially, it involves buying a cryptocurrency at a lower price on one exchange and simultaneously selling it at a higher price on another. This price difference can occur due to various factors, including market inefficiencies, varying demand, or differences in trading volumes between exchanges.

Traders engaging in crypto arbitrage typically rely on speed and automation, often using bots to execute trades quickly before the price discrepancy closes. There are several types of arbitrage strategies, including spatial arbitrage (trading between different exchanges), triangular arbitrage (trading between three different cryptocurrencies), and statistical arbitrage (using mathematical models to predict price movements).

While crypto arbitrage can be profitable, it also comes with risks, such as transaction fees, withdrawal limits, and the potential for price fluctuations during the trading process. Additionally, as the cryptocurrency market matures, these opportunities may become less frequent and more competitive.