How Does Liquidity Affect the Profitability of Crypto Arbitrage?

Low liquidity means that large orders can significantly move the market price, leading to high slippage. This reduces the profitability of an arbitrage trade.

High liquidity ensures that the arbitrageur can execute both the buy and sell legs of the trade at the expected prices. Arbitrage opportunities are more likely to be exploited quickly in highly liquid markets, thus increasing efficiency.

Low liquidity can protect inefficiencies.