TradingIntermediate#Strategy#Execution
Arbitrage
A
Definition
The simultaneous purchase and sale of an asset in different markets to exploit price inefficiencies for profit.
Source reviewed
- CFTC: Cryptoassets market structure opens in a new tab
Supports: Notes that apparent cross-exchange price differences can persist because of structural limitations and delays.
- CFTC: Digital asset frauds opens in a new tab
Supports: Warns that there is no risk-free transaction or guaranteed money-making opportunity, including claims involving automated trading strategies.
Concept Diagram
Key Takeaways
1
Arbitrage compares prices for the same exposure across markets or instruments
2
A spread can disappear before offsetting orders fill, so simultaneous execution is not guaranteed
3
Triangular arbitrage compares implied prices across three trading pairs on one venue
4
Costs, custody, venue rules, funding, and execution timing can turn an apparent spread into a loss
Practical Example
An asset appears to trade at $64,800 on one venue and $65,100 on another. Before acting, compare executable bid and ask prices, depth, fees, transfer limits, settlement timing, funding or margin requirements, and whether both orders can actually fill. A displayed spread alone does not establish a profit.
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Related Terms
Strategy
Autonomous ArbitrageAutomated observation and attempted execution of offsetting trades across venues or instruments when their executable prices differ. A displayed spread is not a guaranteed profit.
Strategy
Funding ArbitrageA position designed to offset some spot-price exposure while receiving or paying a perpetual contract's venue-defined funding transfers. It is a basis and execution trade, not fixed income, a guaranteed yield, or a fully market-neutral position.
Blockchain
Flash LoansA protocol-specific transaction pattern in which a contract receives assets and must return the required amount plus any premium within the same successful transaction, or the transaction reverts. It is an atomic-programming mechanism, not unqualified credit or risk-free arbitrage.
Blockchain
DEX (Decentralized Exchange)An exchange design that uses blockchain transactions, smart contracts, or an onchain order book to match or execute trades. Custody, operator roles, access controls, fees, execution, and protections vary by protocol and jurisdiction.
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