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Arbitrage

Taking advantage of a difference in price of the same commodity on two different exchanges.

An arbitrage situation occurs when the same asset is listed with a different price on different exchanges. When this occurs an arbitrage trade can be made, where the asset is simultaneously purchased at one exchange (the lower price) and sold on the other exchange (the higher price). This yields a typically small, but guaranteed risk-free profit. Arbitrage opportunities exist due to the inefficient nature of markets.

Because of technological advances and computerized trading systems, arbitrage is extremely difficult in the traditional centralized markets such as stocks, bonds, forex and commodities. Typically any price difference between exchanges is corrected within seconds, or even less. It is still a viable strategy in cryptocurrency markets however, as computerized trading bots are not yet widespread among the cryptocurrency exchanges, and price discrepancies can last for a longer period of time.

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