Definition

Arbitrage is a trading strategy that seeks to profit from price differences of the same asset across multiple markets or exchanges. Traders execute simultaneous or near-simultaneous buy and sell orders to capture small discrepancies before they normalize.

Because price gaps may close quickly, arbitrage typically relies on rapid execution and efficient market access.

Example in Context

If Bitcoin trades at $40,000 on Exchange A and $40,150 on Exchange B, a trader may buy on Exchange A and sell on Exchange B to capture the spread, subject to fees and execution timing.

FAQs

Is arbitrage risk-free?

No. Execution delays, slippage, fees, and transfer times can impact outcomes.

Do arbitrage opportunities last long?

They are often short-lived and may require automated systems to capture efficiently.

Is arbitrage legal?

Arbitrage trading is generally legal, but traders must comply with exchange rules and applicable regulations.

Related Terms