WEB3
by BSCN
February 6, 2023
Arbitrage trading can be a low-risk strategy for traders complexly take advantage of prices across various markets.
Arbitrage trading is a trading strategy where the trader capitalizes on the price of assets and commodities between different markets or exchanges. Arbitrage trading involves buying an undervalued asset in one market and then selling it in another market where it has a higher value, making a profit from the difference in price along the way.
Arbitrage trading is typically achieved using bots, algorithms, and/or high-frequency trading tools that are able to help identify and take advantage of these price discrepancies as quickly as possible. With the onset of Artificial Intelligence (AI) and Decentralized Finance (DeFi), the possibilities have become more efficient and proliferated.
What is also great is that arbitrage trading is a high-frequency, low-risk strategy. If a trader can execute their transactions quickly and accurately, they won’t be exposed to market volatility. This gives traders a low-risk, low-friction, but highly sophisticated avenue to capitalize on price differences across multiple markets.
Let’s take Bitcoin as an example. If the price of Bitcoin is $50,000 on Exchange A and $51,000 on Exchange B, a savvy trader can buy Bitcoin on the first exchange and sell it on the second exchange, earning a profit of $1,000.
FTX infamously made millions on Bitcoin arbitrage trading by taking advantage of the Kimchi Premium. The Kimchi Premium was a phenomenon where the price of Bitcoin and other cryptocurrencies in South Korea was significantly higher than in other countries due to a combination of strong demand in the country and limitations placed by the government.
Arbitrage trading is not only limited to cryptocurrencies and decentralized finance. The strategy can also be applied to traditional assets such as stocks, commodities, and currencies using modern tools. However, the execution can be challenging since the price differences are so minute and ephemeral.
Latest News
0h : 12m ago
What is Sidra Start? Crowdfunding on Sidra Chain
2h : 43m ago
PiDaoSwap Launches into Pi Network Ecosystem: Announces New Features
5h : 38m ago
How Much Bitcoin Japan's MicroStrategy Metaplanet Owns
8h : 23m ago
What’s Driving BNB Chain’s DEX Volume?
March 23, 2025
Fidelity Files to Register Tokenized Treasury Fund On Ethereum
March 22, 2025
What is Axie Infinity, AXS and SLP? Full Guide
March 22, 2025
Weekly Article Recap: 3/17-3/21
March 21, 2025
What is PIDaoSwap? A New Decentralized Exchange (DEX) on Pi Network