Arbitrage refers to trading similar assets in different markets intending to gain from the slight difference in prices in both markets. Traders who partake in arbitrage are known as arbitrageurs. An arbitrageur simply buys an asset in a market and sells it simultaneously to benefit from a higher sale price in another market. Common arbitrage became popular in the stock market and has also become common in cryptocurrencies.
The crypto market is very volatile, resulting in swift changes in the prices of assets. Arbitrage occurs in crypto, where a trader buys a coin on an exchange and sells the same coin on another exchange. While taking advantage of the market’s inefficiencies, arbitrage helps to provide liquidity to the market and makes the market more efficient. Crypto arbitrage can work in both CEX and DEX, although most traders make more profit from DEX.
A typical example of a crypto arbitrage occurs when a trader buys ETH on Binance at $3,550 and sells it on Coinbase at $3,555, making the difference as profit. This act of capitalizing on the market’s inefficiencies is legal and helps the market.