Arbitrage Trading in Crypto Markets (part 02)

By arbitrage trading in general we mean making a temporary profit by buying at a low price and selling at a higher price on another exchange. But there are many types in this system. Especially in the crypto market, we notice its different types. In today's second part of the series, I will discuss three types of arbitrage trading.

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Spatial Arbitrage:

This is the most straightforward form of arbitrage. Here a trader buys crypto on one exchange and sells it on another. For example, if Bitcoin is priced at $50,000 on Exchange X and $50,200 on Exchange Y, a trader could buy on A and sell on B to pocket the $200 difference. This is called the spatial arbitrage.

Triangular Arbitrage:

This type is based on three different cryptos and exploits the price differences among them. A trader might start with Bitcoin, convert it to Ethereum, then to Litecoin, and finally back to Bitcoin. If there is a price imbalance, the trader can profit from the round trip. This is happening in the traditional fiat market in a similar way as well. Arbitrage groups always follow these differences to gain profit from them. This is how happens similar way in the crypto space as well. For example, A trader Starts with $10,000 USD. Buy BTC with USD: BTC/USD = $10,000, Purchase 1 BTC. Then Convert BTC to ETH: BTC/ETH = 20 and Convert 1 BTC to 20 ETH. Then Sell ETH for USD: ETH/USD = $550 and Sell 20 ETH for $11,000 USD. In this way, the trader started with $10,000 and ended with $11,000, making a $1,000 profit from the triangular arbitrage.

Statistical Arbitrage:

This is more complex and involves mathematical models to identify arbitrage opportunities based on historical price data and statistical indicators.

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