Arbitrage trading is one of the trading strategies with a low risk of capital loss. It takes advantage of price differences in markets, in this case cryptocurrencies. Most often it is on the plane of only one cryptocurrency, for example Ethereum, and trading it on different exchanges. When the price is X on one exchange and X-Y on another, it is an opportunity to perform arbitrage.
This is one of the most popular strategies in trading and the ones that make the most money for the big shots. As we know, there is no such thing as a guaranteed profit but arbitrage trading is the closest to it. Due to the fact that market fluctuations can be large and sudden, profits from such a strategy are often small.
But how do you make such a trade? It is to generate profit by selling assets on one exchange and buying them on another. In theory the final balance should be zero, because it is the same asset after all, but in practice there will always be differences in price, however small. The biggest challenge is to find a convenient price difference and to react very quickly and trade the asset. As the risk of such transactions is low, the returns are equally low (of course everything depends on your initial capital).
The most common method of arbitrage is to buy a cryptocurrency on one exchange and sell it on another. The difference in price times our capital equals the potential profit. Of course, it's all a matter of commission and the spread, which is the difference between buying and selling. Keep in mind that the biggest risk in arbitrage trading is the execution of the trade itself. When the difference between the prices of the same asset disappears, you will get zero profit or even a loss depending on the commission of the exchange.
In conclusion, arbitrage is a great opportunity for passive earning of cryptocurrencies or currencies. We find the right pairs of cryptocurrencies or single assets, sell and buy at different prices and the difference is our profit.
