Arbitrage

Arbitrage involves taking advantage of price differences for the same asset across different markets. By buying the asset where it’s cheaper and selling it where it’s more expensive—often at the same time—traders can lock in a nearly risk-free profit. This process isn’t limited to identical assets; it can also include related financial products like derivatives that track the same underlying value.

Despite seeming simple, successful arbitrage requires factoring in trading fees and the bid-ask spread. These costs can easily outweigh tiny price differences, so not every gap between markets is profitable. Additionally, when enough traders spot an arbitrage opportunity, their activity quickly evens out the prices across markets, closing the window for easy profit.

Because these opportunities are rare and vanish in seconds, many arbitrageurs rely on advanced algorithms and automated trading systems to act faster than competitors. Arbitrage not only benefits traders but also helps keep markets efficient by ensuring prices align globally.