When working with arbitrage, the practice of exploiting price differences of the same asset across different markets or platforms to lock in profit. Also known as price discrepancy trading, it relies on quick execution and low transaction costs to be effective. Arbitrage thrives in the fast‑moving crypto world where dozens of venues list the same coin at slightly different prices every second.
There are three common flavors you’ll run into. Spatial arbitrage grabs the spread between two separate exchanges, while triangular arbitrage hops through three trading pairs on a single platform to close a loop of profit. Statistical arbitrage uses algorithms to predict short‑term mispricings based on historic patterns. All three require reliable data, low latency, and an understanding of how fees eat into returns.
The first piece of the puzzle is where you trade. Decentralized Exchanges (DEXs), peer‑to‑peer platforms that run on smart contracts without a central order book give you instant access to on‑chain liquidity, but they also introduce gas costs and slippage. Centralized venues often have tighter spreads but require KYC and can freeze accounts. Knowing which venue fits your strategy is a core decision.
Next, you need a signal that tells you when a price is out of line. Market bands, pre‑defined price ranges that signal overbought or oversold conditions act like traffic lights for traders. When a token price pushes the upper band on Exchange A while staying near the lower band on Exchange B, a spatial arbitrage window opens. Many tools now visualize these bands in real time, letting you act before the spread collapses.
Liquidity is the engine that moves the trade. Liquidity providers, entities that lock capital into pools to enable smooth trades keep the order books from drying up. Large pools mean you can execute bigger orders without moving the market. However, each trade incurs a fee to the pool, so you must factor that into your profit calculation.
All of these components are tied together by smart contracts, self‑executing code that enforces trade rules on‑chain. A well‑written contract can automate the entire arbitrage loop: detect the spread, send the transaction, and settle the profit—all within a single block. This automation reduces human error and speeds up execution, but it also introduces contract risk. Audited code and thorough testing are essential safety nets.
Risk management rounds out the picture. Transaction fees, network congestion, and sudden price swings can turn a winning spread into a loss in seconds. Setting tight stop‑loss thresholds, monitoring gas prices, and using multi‑signature wallets to control capital are practical ways to keep losses in check. Remember, arbitrage isn’t a free lunch—it’s a race against time and cost.
Below you’ll find a curated collection of articles that dive deeper into each of these topics, from detailed DEX reviews to market‑band indicators and smart‑contract safety guides. Whether you’re just starting out or looking to refine a sophisticated bot, the resources here will give you the context you need to act confidently.
Learn how different trading pair structures create arbitrage opportunities across exchanges, triangular loops, DeFi, and traditional markets, plus a practical checklist and FAQ.