What Are the Most Common Types of Arbitrage in Cryptocurrency Markets?
The most common types of crypto arbitrage include cross-exchange arbitrage, triangular arbitrage, and decentralized arbitrage. Cross-exchange arbitrage involves buying a cryptocurrency on one exchange and selling it on another where the price is higher.
Triangular arbitrage exploits price discrepancies between three different cryptocurrencies on the same exchange. Decentralized arbitrage takes advantage of price differences between decentralized exchanges (DEXs).
Finally, flash loan arbitrage is a more complex strategy that involves borrowing and repaying a large amount of cryptocurrency in a single transaction to exploit price differences in DeFi protocols.
Glossar
Price Discrepancies
Detection ⎊ Identifying these variances involves continuous, high-frequency comparison of asset prices, implied volatilities, or funding rates across different exchanges or derivative contracts.
Decentralized Exchanges
Access ⎊ These platforms offer permissionless entry to cryptocurrency and tokenized asset markets, democratizing capital deployment into novel financial structures.
Automated Trading Bots
Algorithm ⎊ Automated trading bots, within cryptocurrency, options, and derivatives markets, represent a codified set of instructions designed to execute trades based on pre-defined parameters, minimizing discretionary intervention.
Flash Loan Arbitrage
Mechanism ⎊ Flash loan arbitrage exploits temporary pricing discrepancies across decentralized exchanges (DEXs) within the cryptocurrency ecosystem, leveraging the ability to borrow unsecured assets.