Arbitrage exploits a pricing inconsistency through related trades in identical or economically equivalent assets. Practical execution requires comparable claims, matched quantities, available capital and settlement. Calling a strategy arbitrage does not remove the risk of incomplete execution, transfers or counterparty failure.
Arbitrage combines buying a cheaper asset with selling the same or an economically equivalent asset at a higher price. CME describes simultaneous buying and selling in different markets to exploit a price difference. In practice, both sides must be executable for the same quantity at the relevant time. Two quotes alone are not a secured profit; sequential trades introduce price-change risk. [1]
First establish what each price actually represents: spot BTC, a derivative, a fund unit or another claim. Compare the purchase price available to the buyer with the sale price available to the seller, rather than two last trades. USD and a USD-pegged token are not automatically the same claim. For derivatives, maturity and settlement also matter; CME Bitcoin Futures are cash-settled against a reference rate and do not deliver physical bitcoin. [2]
Sending both orders does not guarantee simultaneous or complete execution. One side may fill only partially while the other remains open or is rejected. Coinbase Exchange matches orders by price and time and distinguishes receipt, an open portion and a completed state. Check the actual executed quantity and why the order ended; a cancelled order is not a filled trade. The remaining one-sided position carries price risk. [3]
Buying BTC, transferring it and only then selling it is not a simultaneous exchange at the original quotes. Hautsch, Scheuch and Voigt connect settlement time with limits to cross-exchange arbitrage: prices may change while waiting. Prepositioned cash and BTC can reduce waiting between trades, but tie up capital in multiple places. Afterwards, the required balances must be restored; that step has its own time, costs and risks. [4]
Calculate the result using actual volume-weighted execution prices on both sides, fees and the cost of returning funds to a usable state. Include relevant conversions, transfers, borrowing and financing. If execution prices already reflect spread and slippage, do not deduct the same effect again. CFA Institute distinguishes execution, delay and the unexecuted portion in execution analysis; an unfilled opportunity is not the same as a booked cash fee. [5]
Being able to buy or sell does not imply being able to withdraw money or BTC when required. Canadian regulators highlight liquidity, technical failures and cybersecurity risks on crypto platforms. Check deposits, withdrawals and transfers for the specific account and asset. A higher price on a hard-to-access platform may reflect problems moving funds; it cannot automatically be treated as a risk-free premium. [6]
Buying spot BTC and selling Futures may exploit their price difference, but requires financing the spot holding, sufficient collateral and compatible settlement. The Crypto Carry study identifies the risk of rising margin requirements and liquidations. Expected future price convergence does not provide cash for today's margin demand. This trade differs from a simultaneously completed purchase and sale of the same spot quantity. [7]
Keep quote timestamps, available depth, orders, individual fills, fees, transfers and final balances. Separate the observed difference, the actual result of executed trades and any remaining open exposure. Tests must include rejections, partial fills and capital rebalancing costs; selecting only successful pairs of trades overstates the result. An independently verifiable record is more useful than a screenshot of two prices. [5]
The price difference and the result of a completed model
For the clearest picture, read this entry together with Bitcoin basis trade, Bid–ask spread, Slippage, Risk Management, Bitcoin futures. The reverse links also lead from Price discovery.
01Does a higher price on another exchange mean certain profit?+
No. You must compare available prices for the same quantity, confirm both fills and include costs and the return of funds. Transfers may take time, withdrawals may be unavailable, and a single filled side leaves price risk.
02Does prepositioning capital remove all risks?+
No. It helps execute both sides without waiting for a transfer between them, but capital remains exposed to the platforms and must later be rebalanced. Partial fills, outages, restricted withdrawals and costs remain possible.