Crypto arbitrage trading bots

Crypto arbitrage trading bots search for price differences between markets and attempt to capture those spreads before they disappear. Unlike directional strategies that try to predict where price will go, arbitrage focuses on short-lived inefficiencies created by fragmented liquidity and funding rates.

1. Types of crypto arbitrage

1.1 Cross-exchange arbitrage

The simplest form: buy a coin on one exchange where it is cheaper and simultaneously sell it on another exchange where it is more expensive. Bots monitor many pairs across venues and calculate net spread after fees.

1.2 Triangular arbitrage

Triangular arbitrage occurs inside a single exchange by exploiting mismatched prices between three trading pairs, such as BTC/USDT, ETH/BTC and ETH/USDT. Bots compute the product of the three exchange rates and execute a cycle when the result deviates enough from parity to cover fees and slippage.

1.3 Funding and basis arbitrage

Perpetual futures and dated futures often trade at premiums or discounts to spot markets. Arbitrage bots can run cash-and-carry strategies by holding spot while shorting futures, collecting funding or capturing convergence into expiry.

2. Technical requirements for arbitrage bots

Because arbitrage windows are small, execution speed and reliability are key. Crypto arbitrage bots need:

• Low-latency APIs and WebSocket feeds for price updates.
• Efficient order routing with immediate feedback on fills.
• Pre-funded balances on multiple exchanges to avoid transfer delays.
• Robust error handling when one leg of the trade fails.

3. Risk factors in arbitrage trading

Arbitrage is often described as “risk-free”, but in practice there are several important risks that bots must manage.

• Execution risk: one side of the trade fills while the other does not.
• Latency risk: by the time orders arrive, the spread has disappeared.
• Counterparty risk: an exchange may freeze withdrawals or suffer outages.
• Funding and fee changes: costs can move against the position over time.

4. Monitoring and capital allocation

Arbitrage bots should include dashboards that show which strategies are active, how much capital is allocated and how profit is distributed across venues. Many operators limit exposure per exchange and per strategy to keep risks diversified, even when opportunities look attractive.

When designed carefully, crypto arbitrage trading bots can become a stable component of a larger trading business, generating relatively uncorrelated returns compared to directional strategies.