What is Arbitrage?
Rather niche way to invest, usually used only by investment funds or hedge funds. Arbitrage transactions comprise the purchase of goods, securities or other instruments, such as cryptocurrencies in one market while simultaneously selling the purchased goods securities other instruments in the same amount in another market where its price is higher. The trick to making arbitrage work is simply to notice the price difference of an instrument in two different markets. If the price difference is higher than the transaction costs resulting from the opening and closing positions on both markets, the investor achieves a risk-free return. This is because the assets are bought at a lower price on one market and then sold at a higher price on another market, which means that the profit can be realised as soon as both transactions are completed. The key to success in arbitrage is that both transactions have to be made at the same time, but this creates some technical difficulties... Does arbitrage pay off?
The simple answer to the question is yes. However, there is a rather serious catch. Price differences in individual markets are minimal, and this means that in order to make a good profit on these differences, as already mentioned above, you cannot incur high transaction costs.
