Arbitrageur is a term for those who are able to exploit price differences for the same asset in different markets to make a profit. This article will learn more about how arbitrageurs execute this strategy so you can start taking advantage of similar opportunities. Let's take a look!
Get to know what an arbitrageur is
An arbitrageur is a specialized investor with the ability to spot price imperfections between two different markets. These individuals are not afraid to allocate capital where profit potential comes their way, as long as it fits with a risk-neutral approach.
Possessing a high level of financial understanding and readiness to face risks, an arbitrageur operates in areas where precision and quick decision making are critical.
How Arbitrageurs Work
Arbitrageurs thrive on recognizing situations where the value of an asset falls below its true value, providing an opportunity to buy it at a discount.
Simultaneously, they exploit opportunities to sell assets equal to their true value, thereby increasing their investment returns—a practice commonly known as arbitrage.
How to Make Profits Through Arbitrage
Arbitrageurs use a variety of strategies to secure profits, all depending on fast and efficient transaction execution.
Long-Run Price Imperfections
Arbitrageurs exploit opportunities when they identify long-term price imperfections.
For example, if the price of gold is considered low compared to silver, an arbitrageur may interpret this as a signal that silver is overvalued.
They exploit this information by buying low-priced assets (e.g. gold) and selling high-priced ones (e.g. silver), thereby making a profit.
Short-Term Price Imperfections
Arbitrageurs also take advantage of short-term price imperfections, exploiting transient disparities to make quick profits.
Currency Arbitrage
Involving the simultaneous buying and selling of two different currencies, currency arbitrage is carried out through derivative contracts such as futures, forwards, or options.
Arbitrageurs engage in buying a currency at a lower price on one platform and selling it on another platform at a higher price, thereby securing a profit.
Arbitrage in Crypto Markets
Similar to other forms of arbitrage, crypto arbitrage occurs when an arbitrageur buys a cryptocurrency at a lower price on one platform and sells it on another platform at a higher price, effectively profiting from the price difference.
Also read:
What is a High Frequency Trader (HFT)?
Get to Know the Crypto Market Psychological Cycles & How to Deal with Them
DISCLAIMER : This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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