Arbitrage

Arbitrage is a trading strategy that takes advantage of price differences for the same asset in different markets. In simple terms, it means buying an asset at a lower price in one place and selling it at a higher price in another, making a profit from the difference. This opportunity usually exists for a very short time because once traders spot the price gap, they quickly act on it, causing the prices to level out. Arbitrage helps keep prices fair across markets because it pushes the prices to match.

There are different types of arbitrage, such as spatial arbitrage (buying in one market and selling in another), statistical arbitrage (using data and models to find price differences), and triangular arbitrage (using three different currencies to profit from exchange rate differences). Arbitrage is considered a low-risk trading strategy because the profit comes from price imbalances, not from predicting future market moves. However, it often requires fast execution, large amounts of capital, and access to multiple markets at the same time.

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