Arbitrage Definition

Arbitrage is buying an asset in one market and selling the same asset in another market where the price is higher, pocketing the difference. In crypto, that usually means spotting a price gap for the same coin across exchanges and acting fast. 

Think “buy low, sell high,” but do it nearly at the same time. Traders scan multiple platforms, grab the asset where it’s cheaper, and flip it where it’s pricier. Small percentage gaps can add up when trades are frequent or automated. 

Why these gaps exist

Prices can diverge due to differences in market liquidity, fees, local demand, time zones, and user bases. Crypto has many venues that don’t always sync perfectly, so short-lived differences appear until traders close them. 

Arbitrage as a force for market balance

When many traders chase the same opportunity, their activity tends to pull prices back together. In a perfectly efficient world, gaps would vanish instantly and arbitrage would not exist. 

Common forms you’ll hear about

• Cross-exchange arbitrage: Buy on one exchange, sell on another.
• Intra-exchange arbitrage: Exploit small differences within the same platform, such as between spot and futures markets.
  These are the headline patterns most beginners meet first.

A quick example

If 1 ETH trades at a lower price on Exchange A than on Exchange B, a trader can buy on A and sell on B to keep the spread as profit, assuming fees and timing don’t erase it.

Crypto-specific tips from practice

On centralized exchanges, speed matters. Having verified accounts and pre-funded balances on both sides helps you execute immediately instead of waiting for blockchain deposits or withdrawals, which can take minutes and kill the opportunity. 

Where it shows up in DeFi

DeFi platforms and automated market makers can price assets differently from centralized markets, so gaps can appear there too. Arbitrage shows up wherever separate markets quote slightly different numbers for the same thing. 

Risks and trade-offs

Arbitrage isn’t guaranteed profit. Fees cut into margins, prices can move before your orders fill, and exchanges impose withdrawal or trading limits. Volatility and latency make timing tricky, and plenty of bots compete for the same spreads.

“Low risk” vs “risk-free”

People sometimes call classic arbitrage low risk because it targets temporary mispricing rather than guessing a future move. In real life, execution risk, costs, and operational issues mean outcomes can vary. 

Outside of crypto: merger arbitrage

Some traders pursue “merger” or “risk” arbitrage, which tries to profit from price moves tied to corporate events like acquisitions. This relies on expectations about the future, so it is more speculative than pure cross-market price gaps.

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