 What is going on ladies and gentlemen and welcome to another Bitcoin daily video in today's video We're talking about arbitrage trading So what is arbitrage trading arbitrage trading is a relatively low-risk Trading strategy that takes advantage of the price differences across the markets So it's basically buying and selling any asset like Bitcoin on different exchanges This is a very common strategy in the trading world But it's mostly been a tool of large financial Institutions with a disruption of Bitcoin and blockchain This is giving crypto traders like you and I a chance to also take advantage of this guys make sure that you like subscribe and comment on this video tell me what you guys think and You know what you think about this? Have you done this before and also make sure to hit that notification bell so that every time we post a new video Which we do five times a week. You get it instantly on your phone. Let's jump right into it guys All right guys, so imagine this scenario What if you could guarantee yourself a profitable trade? What would that look like you'd have to know even before entering the trade that you're gonna make a profit, right? Anyone with that kind of edge would exploit it until they no longer could this is basically what banks do and other financial institutions While there's no such thing as a guaranteed profit I would say that arbitrage trading is probably the closest thing to it now things to consider here is that Profits on these are usually very slim and depend on speed and volume That's why most arbitrage trading is usually done by algorithms developed by high frequency Trading firms, so what exactly is arbitrage trading arbitrage trading is a trading strategy that basically aims to generate profit by Simultaneously buying an asset in one market and at the same time selling it in another This is commonly done between identical assets traded on different exchanges the difference in price between these financial instruments should in theory be zero since they're quite literally the same asset So the challenge that arbitrage traders have is not only finding these price differences But being able to trade them very quickly since other arbitrage traders are probably looking at the same thing The window to make these trades and make a profit are usually very very small on top of that Since arbitrage trades are generally pretty low risk the returns are usually also pretty small That means that arbitrage traders not only need to act quickly But they also need a lot of capital to make it worth it So you're probably wondering what are the different types of arbitrage trading options available to cryptocurrency traders and there's definitely a Different types so that you can take advantage of so let's jump right into it So there are many type of arbitrage strategies that traders from all over the world and in all sorts of different markets Usually are taking advantage of however when it comes to cryptocurrency There's usually some distinct types that are quite commonly used. So the first one that we're gonna talk about is exchange arbitrage This is the most common arbitrage trading used in crypto Which is basically when you buy The same asset in one exchange and you sell it in another the price of crypto currencies can change very very quickly So that's why you need to act very very fast If you take a look at the order books on different exchanges for the same asset, you'll notice that they are almost never the same This is where arbitrage traders come in they try to exploit these small differences for profit This in turn makes the underlying market a lot more efficient in this sense market Inefficiencies means opportunity. So how does this actually work in practice? So let's say there's a price difference for Bitcoin in finance in another exchange If an arbitrage trader sees this they will want to buy Bitcoin on the exchange with the lower price and sell it on the exchange with the higher price Of course timing and execution is crucial. The Bitcoin market has matured a lot So the windows of opportunity are usually very small So another common type of arbitrage trading for crypto derivative traders is funding rate arbitrage This is when a trader buys a cryptocurrency and hedges its price movement with the futures contract in the same Cryptocurrency that has a funding rate lower than the cost of purchasing the cryptocurrency the cost in this case means any fees That the position may incur so let's say you own some ethereum in this example, right now You're probably super excited with your position and with your investment But the price of ethereum is going to fluctuate up and down a lot, right? So you decide to hedge your price exposure by selling a futures contract aka shorting for the same value of your Ethereum investment, let's say the funding rate for the contract pays you 2% that would mean that you would get 2% For owning ethereum without any price risk resulting in a profitable arbitrage Opportunity so another very common type of arbitrage trading strategy in the crypto space Is called triangular arbitrage this type of arbitrage is when a trader notices a price discrepancy between three Different crypto currencies and exchanges them from one another in sort of a loop So the idea behind triangular arbitrage comes from trying to take advantage between the price difference of a cross currency like Bitcoin ethereum for example You could buy Bitcoin with your BNB finance coin Then you buy ethereum with your Bitcoin and finally buy back Binance with ethereum if the relative value between ethereum and Bitcoin Doesn't match the value each of those currencies has with finance and arbitrage Opportunity exists there and at the end of the day as traders We're in a business of opportunity while arbitrage trading is considered low risk That doesn't mean it's zero without risk. There would be no reward and arbitrage trading is certainly not an exception So the biggest risk associated with arbitrage trading is execution This happens when the spread between the prices closes before you're able to finalize the trade This could result in zero or even negative returns. This could be due to slippage slow execution high transaction costs or a sudden spike in volatility Another major risk when engaging in arbitrage trading is liquidity This happens when there's not enough liquidity To get in and out of the markets that you're trying to get into To complete your arbitrage if you're trading using leveraged instruments like futures contracts And it's also possible that you can get hit with a margin call if the trade goes against you as usual with any type of trading Exercising proper risk management is crucial So all in all being able to take advantage of arbitrage trading is a great opportunity for crypto traders With the right amount of speed and capital to participate in these type of strategies You can find yourself executing low risk profitable trades in no time Remember that the risk involved in arbitrage trading should not be overlooked while arbitrage trading might imply Risk free profit or guaranteed profits The reality is that there's enough risk involved to keep any trader on their toes If you still have any questions about arbitrage trading and any of these strategies that we just went over Feel free to drop it down in the comments and I will try to get to you guys If I have an answer for you then I'll I'll try to give you guys an answer to those questions Remember that there's risk involved in any type of investment that you decide to do I'm just trying to give you guys and show you guys a possibility and Opportunities that are out there for you guys to make profits no matter what type of trading you decide to do Not all types of trading are the same and and is meant for everybody Some people like one way others like the other you just got to do whatever you feel fits best for you And the investment style that you like to do appreciate you guys taking the time to watch this video Make sure to hit that like button hit that subscribe if you haven't yet and hit that notification bell So you get notified every time we post a brand new video. Thank you guys I will see you guys tomorrow on the next video as always peace and love We're out