Arbitrage
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In economics and finance, arbitrage is the practice of taking advantage of a difference in prices in two or more markets, striking a combination of matching deals to capitalize on the difference, the profit being the difference between the market prices at which the unit is traded. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit after transaction costs. For example, an arbitrage opportunity is present when there is the possibility to instantaneously buy something for a low price and sell it for a higher price.
Like trading stocks, “buy low and sell high” is the essence of arbitrage. The variation of tokens, EOAs, vaults, and liquidity pools derives arbitrages using assorted tokens and trading venues.
Commonly, arbitrages that don't mess with the trading orders bridge the pricing information in the DeFi market, making it more efficient.
Let’s dive into arbitrages using different numbers of tokens and token venues and see how the arbitrage searchers exploit the essence in their practices.