An asset is acquired in one market and immediately sold in another at a greater price, taking the benefit of the price differential to make a profit. This trading approach is known as arbitrage.
Arbitrage employing cryptocurrencies as the relevant asset are self-explanatory; it is known as crypto arbitrage. This strategy benefits from the fact that cryptos are valued differently on various exchanges.
Let’s assume that the price of Bitcoin is $10,000 on one exchange and $9,800 on another. The secret to arbitrage is taking benefit of this pricing differential. For example, a trader may purchase Bitcoin on the second exchange, move it to the first, and then sell the Bitcoin for about $200 more.
Arbitrage can be thought of as a risk-free strategy to profit from transient price discrepancies. However, it is crucial to remember that trading bots operate on a variety of platforms, and many of them were created specifically to profit from arbitrage opportunities. Therefore, arbitrage trading may involve some dangers depending on the plan and execution.
