What Are Arbitrage Strategies
Arbitrage strategies are used in trading and investing, especially in cryptocurrencies and financial markets, to profit from price differences on one or multiple markets. Typically, an arbitrage strategy involves two or more instruments where the same asset is traded at different prices.
Here's how it works:
⚫ Classic Arbitrage: Buying an asset on one exchange where the price is lower and simultaneously selling it on another exchange where the price is higher. The trader captures the price difference as profit.
⚫ Triangular Arbitrage: Involves trading between three currencies or assets on a single exchange. For example, buying BTC for USDT, exchanging BTC for ETH, and then selling ETH back for USDT if this chain of transactions yields a profit.
⚫ Intermarket Arbitrage: Involves arbitrage between ifferent markets, such as futures and spot markets. If a cryptocurrency future trades at a higher price, a trader may buy it on the spot market and sell the future, profiting from the price difference.
Arbitrage strategies attract traders as they can be a relatively safe way to profit with proper risk management. However, arbitrage requires high execution speed and accounting for fees, as price differences are often minimal and disappear quickly.
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