This practice exploits inefficiencies in pricing between different marketplaces — often due to differences in liquidity, trading volume, speed, or regional market conditions. While often associated with cryptocurrencies, it also exists in stocks, ETFs, commodities, and even foreign exchange markets.

⚙️ How It Works

The basic idea is simple:

1. Monitor multiple exchanges for the same asset.
2. Identify a price gap between two platforms.
3. Buy low on Exchange A, and sell high on Exchange B.
4. Pocket the difference — minus fees, slippage, and transfer costs.

For example:

• Stock ABC is trading at $100 on Exchange A.
• At the same moment, it’s priced at $101 on Exchange B.
• If you buy 100 shares on A and sell them on B, you capture a $1 per share profit, or $100 total — before costs.

This strategy typically requires high speed, automation, and real-time data, especially in fast-moving markets where opportunities can vanish in seconds.

🧠 Key Factors for Success

• Speed of execution: Arbitrage windows are often short-lived — milliseconds matter.
• Low latency access: Faster data and order routing improves edge.
• Access to capital: You need funds available on both exchanges to act quickly.
• Transaction costs: Fees, spreads, and withdrawal delays can eat into or eliminate profits.
• Market conditions: Illiquid or fragmented markets tend to create more opportunities.

💹 Where It’s Commonly Used

• Cryptocurrency: Price differences between exchanges (e.g., Binance vs. Coinbase) can be significant due to lack of centralized pricing.
• Global stock listings: Dual-listed companies (e.g., Royal Dutch Shell on London and Amsterdam exchanges) may diverge temporarily in price.
• ETFs: Exchange-traded funds tracking the same index might trade at slightly different prices on different platforms.
• Forex markets: Currency pairs priced differently across brokers or regions can be arbitraged — often by large institutions.

⚖️ Risks and Limitations

• Execution risk: One leg of the trade might fail, leaving you exposed to price movements.
• Transfer delays: Moving funds or assets between exchanges can take time — during which prices can change.
• Fees and commissions: These can turn a profitable spread into a loss if not accounted for.
• Slippage: Market conditions might shift before your trade executes.
• Regulatory friction: Some exchanges or jurisdictions may restrict arbitrage activity or fund transfers.

🧠 Things to Remember

• Cross-exchange arbitrage is about exploiting temporary pricing inefficiencies — not long-term investments.
• Profits per trade are usually small but can add up with volume and speed.
• Requires real-time data, automation, and careful cost management.
• Best suited for high-frequency traders or algorithmic strategies — though manual arbitrage still occurs in crypto and niche markets.
• Like all strategies, it’s only effective when properly executed — small errors can turn a small edge into a fast loss.