Arbitrage is a trading technique used to buy an asset for cheap and sell it for more price by taking the benefit of two different prices for the same asset in different markets.
These opportunities arise due to inefficiencies in the price discovery in the markets.
There are several types of arbitrage possible in crypto markets. These are:
- Cross-Chain Arbitrage: Cross-chain arbitrage refers to the price difference in an asset over different blockchains. These kinds of opportunities arise in multi-chain assets like USDT, USDC, etc.
- Arbitrage Across Exchanges: If the price of arbitrage is different in two different exchanges, whether both CEXs or both DEXs or between a DEX and a CEX. This kind of opportunity exists when there is a token launch on DEX and a subsequent CEX listing.
- Triangular Arbitrage: This kind of arbitrage is seen when a trader exploits price differences in a single asset across three markets or between two sets of markets (one common market). For example, the price of USDC is different on Raydium (Solana DEX), Binance (CEX), and a P2P platform, so a user can buy from the lowest-priced markets and sell in others. Or do an A>B>C trading.
Example
A trader made 400% profits converting an initial capital of $18k to $77k just by exploiting the price difference of the then newly launched DOGS token.
