Arbitrage trading is a strategy used to profit from small price differences in an asset across different markets. It involves simultaneously buying and selling the same or similar asset in different markets to take advantage of tiny differences in their prices. The goal is to exploit short-lived variations in the price of identical or similar financial instruments in different markets or in different forms. Arbitrage exists as a result of market inefficiencies, and it both exploits those inefficiencies and resolves them.
Arbitrage trading can be done in stocks, commodities, currencies, and other assets. The standard definition of arbitrage involves buying and selling shares of stock, commodities, or currencies on multiple markets to profit from inevitable differences in their prices from minute to minute. However, the term “arbitrage” is also sometimes used to describe other trading activities, such as merger arbitrage, which involves buying shares in companies prior to an announced or expected merger.
There are different types of arbitrage, including pure arbitrage, retail arbitrage, and crypto arbitrage. Pure arbitrage refers to the investment strategy of simultaneously buying and selling a security in different markets to take advantage of differences in price. Retail arbitrage is when an individual buys an item in one market and sells it in another market to turn a quick profit. Crypto arbitrage trading is a strategy used in financial markets where traders profit from small price discrepancies in a cryptocurrency trading pair across different markets or platforms.
Arbitrage trading requires finding unique circumstances in different markets that cause the same goods to be priced differently. It usually requires in-depth knowledge of different markets and close observation of the news cycle. Arbitrage opportunities are usually small and short-lived, and they disappear almost as rapidly as they are discovered. Arbitrage trading can be profitable, but it also carries risks and requires significant ...
