What Role Do Maker-Taker Fees Play in the Profitability of Arbitrage Strategies?

Maker-taker fees are a common fee structure on exchanges that can significantly impact arbitrage profitability. Maker fees are paid by traders who provide liquidity by placing limit orders, while taker fees are for those who remove liquidity with market orders.

Arbitrage often requires immediate execution (taker orders), which typically have higher fees. These higher taker fees can eat into the thin margins of an arbitrage trade, potentially making it unprofitable.