What Are the Risks Associated with Cross-Exchange Arbitrage?

The primary risks associated with cross-exchange arbitrage are execution risk, transfer delays, and exchange-specific risks. Execution risk occurs when the price changes before the trade can be completed, eliminating the arbitrage opportunity.

Transfer delays between exchanges can also be a significant issue, as the price difference may disappear before the funds arrive at the second exchange. Exchange-specific risks include the possibility of an exchange halting withdrawals, experiencing technical difficulties, or having insufficient liquidity to complete the trade.

Additionally, traders must account for withdrawal and trading fees on both exchanges, which can impact profitability.