Arbitrage in crypto refers to the practice of taking advantage of price differences between different cryptocurrency exchanges or trading pairs to make a profit. It involves buying a cryptocurrency at a lower price on one exchange and selling it at a higher price on another exchange or trading pair, simultaneously or with a short time gap in between.
For example, if Bitcoin is trading at $50,000 on one exchange and $55,000 on another exchange, a trader could buy Bitcoin on the first exchange and then immediately sell it on the second exchange, earning a profit of $5,000 per Bitcoin.
Arbitrage in crypto is possible because the cryptocurrency market is decentralized and often lacks price uniformity across different exchanges or trading pairs due to factors such as market demand, supply, and liquidity. However, arbitrage opportunities are usually short-lived and require quick action, as the market can quickly adjust to eliminate price disparities.
Arbitrage is a common strategy used by traders and market makers to make profits in the crypto market, but it requires a deep understanding of market dynamics, risk management, and technical expertise to execute effectively.