Simply put, crypto arbitrage means buying cryptocurrency on one exchange and selling it for a higher price on another exchange, allowing you to make a profit.
This process is possible because there are various crypto exchanges out there, and their prices adjust differently depending on their liquidity and how fast they change to general market prices.
For instance, if you buy one Bitcoin for $42,000 on Binance then sell it for $42,500 on Huobi, you’ve successfully netted $500. In reality, a profit this high is unlikely given most platforms take a cut, but it’s certainly possible to make something if you’re smart — we’ll explain how soon.
Arbitrage is different from other trading strategies since you’re not taking advantage of price changes over time — you’re taking advantage of price differences between exchanges.
As a side note, this phenomenon isn’t unique to cryptocurrencies. You can also do arbitrage for foreign currencies, stocks, precious metals, and other assets. People have been engaging in arbitrage for centuries!
Still, you might have an easier time with cryptocurrencies than more traditional assets since it’s a newer and less efficient market. A few big exchanges significantly impact the prices of smaller exchanges (which adapt more slowly).