Crypto glossary
Arbitrage
Arbitrage is the practice of buying an asset where it is cheaper and selling it where it is more expensive at the same time, to profit from the price gap.
Because crypto trades on hundreds of venues, the same coin can briefly carry different prices on different exchanges or pools. An arbitrageur buys on the cheap side and sells on the expensive side, keeping the gap minus fees. Each such trade pushes prices back together, which is why arbitrage keeps markets aligned.
Common forms include cross-exchange arbitrage, triangular arbitrage among three trading pairs and on-chain arbitrage between DEX pools, usually run by bots competing for the same opportunities and a major source of MEV. Flash loans let arbitrageurs borrow large sums within a single transaction. The so-called kimchi premium, when bitcoin trades higher in South Korea than abroad, is a well-known gap kept open by capital controls.
Real arbitrage is rarely risk-free. Transfer delays, withdrawal limits, fees, slippage and failed transactions can erase the margin, and opportunities usually last seconds. Gaps that persist often signal a problem, such as frozen withdrawals or a token losing its peg.
Example
If USDC trades at 0.998 dollars on one exchange and 1.002 on another, a bot that buys 100,000 USDC on the first and sells on the second earns about 400 dollars before fees.
Related terms
Latest articles on Arbitrage
- Binance VIP Head Says 24/7 Crypto Trading Is Drawing Hedge Funds to Arbitrage
- The L2 Economy on Ethereum: Profitability, Arbitrage, and an Unresolved Alignment Problem
- Circle Suspended Arbitrage Fund in 2023 Over Suspected Efforts to Aid Competitor Tether
- BASIS Launches Crypto Arbitrage Platform after Testing
- World Liberty Financial Proposes a Tiered Governance System That Redirects Millions in Arbitrage Back to Its Own Token Holders
