Crypto arbitrage is the practice of profiting from a price difference for the same asset across two or more markets (exchanges, DEXs, or trading pairs). The idea: buy where it's cheaper, sell where it's more expensive, and pocket the spread.
The most common types:
- Exchange arbitrage — the same coin trades at slightly different prices on Binance vs. Coinbase vs. a DEX. Buy on the cheaper one, sell on the pricier one.
- Cross-exchange — two different centralized exchanges.
- DEX vs. CEX — a token may trade higher or lower on a decentralized pool (Uniswap, Raydium) than on a centralized exchange, especially for new or illiquid tokens.
- Triangular arbitrage — within a single exchange, going through multiple pairs (e.g. BTC → ETH → USDT → BTC) exploiting small inconsistencies between pair prices.
- Funding-rate arbitrage — the "cash-and-carry" trade: hold the spot asset while shorting the perpetual futures contract, capturing the funding rate paid by leveraged longs.
Why it's not a free-money machine:
- Fees eat the spread — trading fees, withdrawal fees, and network gas can easily exceed the often-tiny price gaps. This is the #1 killer.
- Speed is everything — gaps close in milliseconds, so profitable arbitrage is usually run by bots with colocated servers, not by a human clicking buttons.
- Capital and lock-up — money has to be on both exchanges at once (since transferring funds takes minutes and the gap will be gone by then).
- Withdrawal/settlement risk — the exchange where you bought can freeze or delay your withdrawal.
- Slippage — on DEXs, your own order moves the price against you, especially with thin liquidity.
- Smart-contract risk — DEX and bridging leg of the trade can be hacked or have the liquidity pulled.
In short: arbitrage is real and exists, but as an individual with manual execution it's usually impractical because costs and speed swamp the spread. It's the domain of sophisticated bots and market makers. That's not investment advice either way — just how the mechanism works.
Want me to look up current prices or trending coins so you can see how actual gaps look in practice?