Understanding Arbitrage
The Mathematics of Guaranteed Profit
Cryptocurrency arbitrage exploits price differences for the same asset across different markets. Unlike traditional trading where you bet on price direction, arbitrage captures spreads that exist due to market inefficiencies. When Bitcoin trades at $50,000 on Binance and $50,100 on Coinbase, that $100 difference is pure profit for those fast enough to capture it.
These opportunities exist because crypto markets are fragmented. Unlike traditional finance where major stocks trade on centralized exchanges, cryptocurrencies trade on hundreds of independent venues. Each exchange has its own order book, liquidity providers, and user base. This fragmentation creates constant price discrepancies.
The key to successful arbitrage is speed and accuracy. Opportunities often last only seconds before algorithmic traders or market makers close the gap. Manual trading is rarely fast enough. That's why we built Arb.fun - to give every trader the tools to compete with institutional algorithms.
Types of Arbitrage Opportunities
Simple Arbitrage
Involves buying an asset on one exchange and selling it on another. This is the most straightforward strategy and typically offers 0.1-1% returns per trade. While the percentage seems small, executing dozens of trades daily compounds into significant returns.
Triangular Arbitrage
Exploits price differences across three or more trading pairs. For example, you might trade SOL to USDT, USDT to BTC, and BTC back to SOL, ending with more SOL than you started with. These opportunities are more complex but often more profitable.
Cross-Chain Arbitrage
Captures price differences for the same asset across different blockchains. When ETH on Ethereum trades differently than Wrapped ETH on Solana, arbitrageurs can profit from bridging assets between chains. These trades require understanding of bridge mechanics and timing.
Flash Loan Arbitrage
Represents the evolution of arbitrage trading. By borrowing millions of dollars for the duration of a single transaction, traders can capture spreads without any upfront capital. The loan is borrowed and repaid in the same transaction, eliminating capital requirements.
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