Arbitrage Bot
Automated software that continuously scans multiple markets for price discrepancies in the same asset and executes trades to capture the difference before it disappears.
An arbitrage bot is automated software that continuously monitors prices for the same or equivalent assets across multiple exchanges or markets, automatically executing offsetting trades the moment it detects a profitable price discrepancy, before that discrepancy disappears. Because profitable arbitrage (see Kaavon's "Arbitrage" glossary definition) opportunities are often small and short-lived, capturing them reliably generally requires automation rather than manual monitoring and trading.
Arbitrage bots compete directly against each other for the same fleeting opportunities, which has driven significant investment in execution speed, including low-latency infrastructure and direct exchange connections, since whichever bot acts fastest typically captures the opportunity while slower competitors miss it entirely. This competitive dynamic tends to make markets more efficient over time, since persistent, easily captured price discrepancies get arbitraged away increasingly quickly as more sophisticated bots compete to find and close them.
Examples
- An arbitrage bot might detect that the same asset is trading at a slightly higher price on one exchange than another, and automatically buy low and sell high before the price gap closes.
- Competition among arbitrage bots for the same fleeting opportunities has driven significant investment in low-latency infrastructure, since whichever bot acts fastest typically captures the trade.