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Algorithmic Arbitrage Meaning

Algorithmic Arbitrage is a form of automated trading that identifies and captures price discrepancies across markets using pre-programmed strategies. Because these opportunities often last milliseconds, algorithms perform the monitoring, calculation, and execution required to capitalize on them. Types of arbitrage include:

Spatial arbitrage - between different venues
Triangular arbitrage - exploiting inconsistencies between three trading pairs
Statistical arbitrage - using quantitative models to detect deviations from expected valuations

In crypto, arbitrage plays a significant role due to fragmented liquidity, differing exchange fees, and varying market microstructures.

Algorithms continuously scan order books, evaluate execution costs, and route trades accordingly. A successful arbitrage algorithm prioritizes speed, low latency connectivity, and precise risk controls.

It must account for transaction fees, transfer times, liquidity depth, and slippage-factors that can quickly eliminate profit margins. For institutions, algorithmic arbitrage is both a market-making tool and a way to ensure pricing efficiency across networks.

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