Course Content
What Is Arbitrage Trading?
Arbitrage trading is a relatively low-risk trading strategy that takes advantage of price differences across markets. Most of the time, this involves buying and selling the same asset (like Bitcoin) on different exchanges. Since the price of Bitcoin should, in theory, be equal on Binance and on another exchange, any difference between the two is likely an arbitrage opportunity. This is a very common strategy in the trading world, but it’s mostly been a tool of large financial institutions. With the democratization of financial markets thanks to cryptocurrencies, there might be an opportunity for cryptocurrency traders to take advantage of it, too.
What Is Arbitrage Trading?
About Lesson

While arbitrage trading is considered relatively low-risk, that doesn’t mean it’s zero. Without risk, there’d be no reward, and arbitrage trading is certainly no exception.

The biggest risk associated with arbitrage trading is execution risk. This happens when the spread between prices closes before you’re able to finalize the trade, resulting in zero or negative returns. This could be due to slippage, slow execution, abnormally high transaction costs, a sudden spike in volatility, etc.
Another major risk when engaging in arbitrage trading is liquidity risk. This happens when there isn’t enough liquidity for you to get in and out of the markets you need to trade to complete your arbitrage. If you’re trading using leveraged instruments, like futures contracts, it’s also possible that you could get hit with a margin call if the trade goes against you. As usual, exercising proper risk management is crucial.