An investor known as an arbitrageur takes advantage of pricing inefficiencies that exist between two separate markets.

Who Is an Arbitrageur?

An arbitrageur is a type of investor who exploits pricing inefficiencies between two different markets. Arbitrageurs are willing to invest capital in a market where they see opportunity, but only if it offers risk-neutral profit. They have a high degree of financial acumen and willingness to take risks. 

Arbitrageurs profit from recognizing when something has fallen below its true value and can be purchased at a discount while simultaneously selling it at its true value and adding return on investment – a practice called arbitrage.

How Do Arbitrageurs Make Money?

There are different ways that arbitrageurs make money. However, they all depend on the completion of transactions quickly.

Long-Term Price Inefficiencies – Arbitrageurs can make money when they see a long-term price inefficiency. For example, if you see that the price of gold is currently low compared to the price of silver, it may be an indication that silver is overvalued compared to gold. Arbitrageurs make money by buying cheaper assets and selling expensive ones. 
Short-Term Price Inefficiencies – Arbitrageurs can also make money when they see a short-term price inefficiency. 

Currency Arbitrage

Currency arbitrage is a trading strategy that involves buying and selling two different currencies at the same time. This strategy is almost always conducted as a derivative contract between two parties, such as a futures, forward or options contract. Arbitrageurs will buy a currency in a specific pair that is trading at a low price compared to another currency platform. Then they sell that currency in that specific pair on the other platform at a higher price to earn a profit.

Crypto Arbitrage

Crypto arbitrage works in a similar manner as other arbitrages and occurs when an arbitrageur buys a coin in a specific pair at a lower price from one platform and sells it at another at a higher price.