Exchange arbitrage refers to the practice of taking advantage of price differences for the same cryptocurrency on different exchanges. Traders buy the cryptocurrency at a lower price on one exchange and sell it for a higher price on another exchange to make a profit.
For example, if Bitcoin is being sold for $9,000 on one exchange and $9,100 on another exchange, a trader can buy Bitcoin on the lower-priced exchange and immediately sell it on the higher-priced exchange, pocketing the price difference as profit.
The key to successful exchange arbitrage is quick execution, as prices can fluctuate rapidly in the cryptocurrency market. Traders often use automated trading bots to scan multiple exchanges simultaneously and execute trades in real-time.
While exchange arbitrage can be a profitable strategy, it is not without risks. Factors such as transaction fees, network congestion, and delays in transferring funds between exchanges can eat into profits. Additionally, the practice may be restricted or prohibited on certain exchanges.
