Crypto Arbitrage Across Exchanges: Methods, Costs, and Risks
Summary
The document explains how crypto arbitrage seeks to capture price or lending-rate differences across exchanges. It describes why gaps can arise, including capital controls, uneven liquidity and reaction speeds, volatility, and differences in transaction fees. It uses South Korea’s Bitcoin premium as an example of local market separation and notes that opportunities may be brief.
It outlines spot arbitrage with assets pre-positioned at both venues, positional arbitrage using offsetting long and short positions, and interest-rate arbitrage by borrowing where rates are lower and lending where they are higher. Automated monitoring can compare exchange prices and account balances, but execution depends on fast detection and funds being available on multiple venues. The article also warns that transfers can take too long and that outages, restrictions, fees, and volatile price moves can turn apparent spreads into losses. Its “riskless” framing is conditional: costs and operational risks matter.
Key ideas
- Crypto arbitrage targets price differences for the same asset across exchanges.
- Capital controls, liquidity differences, volatility, and fee tiers can create temporary price gaps.
- Spot arbitrage generally requires the needed cash and crypto to be held at separate exchanges in advance.
- Positional arbitrage can use offsetting long and short positions to trade convergence without transferring the asset.
- Exchange outages, transfer delays, fees, and execution failures can eliminate expected profits or create losses.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.