Crypto Arbitrage: Exchange Price Gaps, Methods, and Trading Risks
Summary
The document explains crypto arbitrage as buying an asset where it is cheaper and selling it where it is more expensive. It describes why prices can differ across exchanges, including variations in supply and demand, liquidity, trading volume, update timing, and fees. Examples illustrate simple cross-exchange arbitrage, triangular arbitrage across three assets, statistical arbitrage using models, and cross-border arbitrage that can involve currency conversion.
It also outlines practical constraints: volatility and execution delays can erase a price gap, while trading and transfer fees reduce returns. The discussion of peer-to-peer offers highlights differences by payment method and local currency, but notes that access to multiple currencies may be needed. The article presents arbitrage as relatively low risk because it does not require predicting market direction, yet that framing understates execution, liquidity, counterparty, and transfer risks. Its examples assume no fees in some cases, so they do not establish that the illustrated trades would be profitable in practice.
Key ideas
- Crypto arbitrage seeks to profit from price differences for the same asset across markets.
- Exchange price gaps can reflect different supply and demand, liquidity, trading volume, update timing, and fees.
- Simple, triangular, statistical, and cross-border arbitrage use different ways to identify and trade discrepancies.
- Transaction costs and delays can reduce or eliminate an apparent arbitrage profit.
- Peer-to-peer price differences may depend on local currency and payment method.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.