Arbitrage is a trading approach that profits from small, temporary price gaps for the same asset rather than from guessing where the market is headed next. In crypto, these gaps exist because trading is scattered across hundreds of exchanges and decentralized platforms, each running its own order book, user base, and fee schedule, so the same coin rarely trades at exactly one price everywhere at once.

The most common form is cross-exchange (spatial) arbitrage: buying a coin where it is cheaper and selling it where it is more expensive. Because moving funds between platforms can take anywhere from minutes to hours depending on blockchain confirmation times, many traders pre-fund accounts on several exchanges so they can act the instant a gap appears instead of waiting on a transfer. A related method, triangular arbitrage, stays on a single exchange and cycles through three trading pairs, for example BTC/USDT, ETH/USDT and BTC/ETH, to end up with more of the starting asset while avoiding withdrawal delays entirely. DeFi introduced another variant: flash-loan arbitrage, where an uncollateralized loan is borrowed and repaid within one blockchain transaction, letting a trader capture a spread across two decentralized exchanges (DEXs) without putting up upfront capital.

In practice, gaps of a fraction of a percent tend to close within seconds as automated bots race to fill them, so any real profit has to clear trading fees, withdrawal costs, and slippage before it counts as a gain. Unlike day trading, arbitrage does not depend on forecasting price direction, but it still carries execution, liquidity, and counterparty risk, which is why sustained profitability is now mostly the domain of automated, well-capitalized operations.