Arbitrage refers to the simultaneous purchase and sale of an asset in different markets to profit from price discrepancies. The practice is rooted in the fundamental principles of economics, where market inefficiencies can lead to price variations for the same asset across different exchanges or geographical locations. It originated in traditional finance but has gained significant traction in the cryptocurrency market due to the volatile nature of digital assets and the decentralized structure of exchanges.

In cryptocurrencies, arbitrage opportunities can arise from differences in price due to latency in market data, varying demand and supply across both and decentralized exchanges, or even regulatory differences between countries. Traders utilize sophisticated algorithms and trading bots to identify and act on these opportunities swiftly, as they typically exist for only a brief period.