What is crypto arbitrage?

Cryptocurrency arbitrage is when an investor buys a cryptocurrency on one exchange and quickly sells it on another for a higher price.

Bitcoin and other cryptocurrencies are traded on hundreds of different exchanges, and the price of a coin or token on one exchange may differ from the price on another. This is where “arbitrage,” an ancient Wall Street strategy, comes into play. Profiting from the fact that an asset is selling for a low price in one market but a higher price in another is known as “capturing the arb.”

Investors that use crypto arbitrage take advantage of a digital currency’s cheaper price on one exchange by buying and selling it for a higher price on another exchange almost quickly. Here’s a closer look at crypto arbitrage and several trading strategies that use it.

What is triangular arbitrage?

Triangular arbitrage takes advantage of price differences between various cryptocurrency pairings on the same exchange. Using this strategy, an investor purchases one cryptocurrency and then trades it for another cryptocurrency on the same exchange that is undervalued in comparison to the first.

The investor would then trade the second coin for a third cryptocurrency that is far more expensive than the first. Finally, the investor would exchange the third coin for the first, completing the circuit with some additional funds.