Simply put, arbitrage trading is a trading strategy, in which a person purchases an asset on one exchange and sells it on another to profit from a deviation in price between markets. As an example, 1 BTC costs $30,000 on Binance but it's currently also trading at $30,100 on Kraken. Because of the discrepancy in these crypto exchange prices, there is a $100 opportunity for arbitrage.
In this instance, you purchase your Bitcoin on Binance and hopefully, you will be able to sell it quickly enough on Kraken to make that $100 profit.
How does crypto arbitrage work?
Crypto arbitrage is looking for the same digital asset selling at different prices and taking advantage of that. There are mainly two types of crypto arbitrage trading: Arbitrage between crypto exchanges and Arbitrage within the same exchange.
The former is the most basic way to make crypto arbitrage work for you as different exchanges will have slightly different markets. But, within Arbitrage between exchanges, some variations help you take advantage of price differences.
Cross-border arbitrage is arbitrage in two exchanges that are situated in different countries.
Statistical arbitrage is a quite difficult trading strategy to pull off as it involves mathematical modeling to invest in hundreds, if not thousands, of options in a short space of time. It is quite risky as in a crypto market; things can change within a short period.
So, once you have identified the two exchanges you want to play off each other, then it is time to enact the arbitrage trades to make a profit. However, one also needs to be aware of the workings that can cause issues in trying to be profitable.