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Arbitrage Meaning

Arbitrage is a trading strategy that exploits price discrepancies for the same asset across different markets. In digital assets, this involves buying a cryptocurrency where it is priced lower and selling it where it is priced higher, capturing the spread as profit. While commonly viewed as low-risk, arbitrage is not risk-free-execution delays, transfer fees, liquidity constraints, and market volatility can erode profitability. Three major forms of arbitrage include:

1. Statistical arbitrage Uses quantitative models, econometrics, and high-frequency trading systems to identify short-lived pricing deviations across assets or markets.

These opportunities often exist for fractions of a second, requiring automated infrastructure. 2. Spatial arbitrage

Involves cross-exchange execution. A trader buys a digital asset on one venue and simultaneously sells it on another with a higher price. The strategy depends on low latency and minimal transfer overhead; network congestion and fees can reduce or eliminate gains.

3. Triangular arbitrage Occurs when three assets on the same exchange present a price imbalance.

The trader cycles from Asset A → Asset B → Asset C → back to Asset A, locking in profit if the implied exchange rates are misaligned. Arbitrage helps improve market efficiency, as the act of buying undervalued assets and selling overvalued ones narrows spreads across venues. Automated systems dominate modern arbitrage, given the speed at which disparities disappear.

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Important Disclaimer:

Finery Markets BVI Limited (“Finery Markets”) provides software, technology infrastructure, and related Information and Communication Technology (ICT) services on a Software-as-a-Service (“SaaS”) basis. Finery Markets acts solely as a software vendor and does not operate a trading platform, does not intermediate, match, execute, clear, or settle transactions, and does not engage in any activities that would require regulatory authorisation under applicable laws.

Finery Markets’ software is non-custodial and is provided exclusively to licensed institutional entities that act as independent operators of their own environments. All counterparties are solely responsible for establishing and maintaining their own bilateral trading and settlement relationships. Finery Markets is not a party to any such arrangements and assumes no responsibility for the conduct, verification, or compliance obligations of any users of the software.

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