How Does an Arbitrageur Profit from a Price Discrepancy in a Liquidity Pool? ⎊ Path

How Does an Arbitrageur Profit from a Price Discrepancy in a Liquidity Pool?

An arbitrageur profits by simultaneously buying the underpriced asset in the liquidity pool and selling it on an external exchange where it is overpriced, or vice-versa. This action is repeated until the pool's price, determined by the ratio of tokens, aligns with the external market price.

The difference between the buy and sell price, minus transaction costs, is the arbitrage profit.

How Do Arbitrageurs Profit from the Price Difference Caused by the X Y=k Formula?

How Does Latency Affect an Arbitrageur’s Ability to Profit from a Pool?

How Does Arbitrage Link the Futures Market Price to the Spot Market Price?

What Is the Necessary Condition for an Arbitrageur to Trade against an AMM Pool?

What Is the Primary Operational Risk for an Arbitrageur Executing a Cash and Carry Trade?

How Do Arbitrageurs Profit from the Price Imbalance in a Liquidity Pool?

How Does MEV (Maximal Extractable Value) Relate to Arbitrage in DEX Pools?

What Is the Difference between a Cash-and-Carry Arbitrage and a Reverse Cash-and-Carry Arbitrage?

Glossar

Arbitrageur Profit

Efficiency ⎊ The realized profit for an arbitrageur quantifies the market's temporary inefficiency, representing a transfer of value from the less efficient venue to the actor capable of rapid execution.

Arbitrageur

Participant ⎊ An arbitrageur is a sophisticated market participant who capitalizes on transient price discrepancies across identical or economically similar assets in different markets.