Arbitrage trading is a strategy where traders exploit price differences of the same asset across different markets or exchanges. By buying low in one market and selling high in another, they make a risk-free profit. This method is commonly used in stock, forex, and cryptocurrency trading.
For example, if Bitcoin is priced at $40,000 on one exchange but $40,500 on another, an arbitrage trader can buy it at $40,000 and instantly sell it at $40,500, securing a $500 profit (minus fees). However, arbitrage requires fast execution, as price gaps close quickly.
While arbitrage may seem like easy money, it comes with risks such as transaction delays, fees, and liquidity issues. Successful arbitrage traders use automation and advanced tools to stay ahead of the competition.
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