Arbitrage is a strategy used to make profit by exploiting market inefficiencies.
The strategy is not exclusive to the crypto space, but was popularised by the so-called “Kimchi Premium”.
Arbitrage is possible whenever an asset can be bought and sold in very short periods of time, across different markets, at different prices.
For example, if Bitcoin is available from one exchange for $20,000 and is being sold on another exchange for $20,100, this can present an arbitrage opportunity where a profit of $100 is possible.
Typically, algorithmic trading bots exploit such inefficients, thereby keeping price deviations across the market in control.
It is natural for prices for certain assets to spike across venues based on supply and demand, however, arbitragers fill the gaps and inevitably ensure that prices stay in line as a whole.