Explore how arbitrage works, its profitability, and whether it still exists in modern markets.
Arbitrage is the practice of taking advantage of a price difference between two or more markets. It involves buying an asset in one market at a lower price and selling it in another market at a higher price.
Profitability: Arbitrage opportunities are rare and often short-lived due to market efficiency. Modern HFT Algorithms are the reason for this.
Formula:
Profit = Price in Market B - Price in Market A
Arbitrage is more common in less efficient markets, such as cryptocurrencies or emerging markets.
If the Arbitrage opportunity is really small, fees and execution time might strongly influence your profit.