# Arbitrage Strategies > Arbitrage strategies try to profit from price gaps between the same or linked assets. Learn the main types, worked examples and why arbitrage is rarely riskless. Source: https://learn.tradelabsai.com/strategies/arbitrage-strategies/ Track: Strategies and Styles · Level: Advanced · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Arbitrage Strategies", https://learn.tradelabsai.com/strategies/arbitrage-strategies/ In theory, arbitrage is a riskless profit: buying something in one place and selling the same thing at a higher price elsewhere at the same moment. In practice, almost every arbitrage strategy carries some risk, whether from timing, costs, financing or the chance that prices diverge further before converging. The basic concept is in the [Arbitrage](https://learn.tradelabsai.com/markets/arbitrage/) lesson; this lesson walks through the main strategies traders actually use and where their risks lie. ## Pure vs risk arbitrage | | Pure arbitrage | Risk (relative value) arbitrage | |---|---|---| | Asset | Identical or equivalent | Related but not identical | | Profit locked in? | In theory, yes | No, depends on convergence | | Typical size of edge | Tiny | Larger | | Main risks | Execution, costs, counterparty | Divergence, events, financing | | Examples | ETF vs basket, put call parity | Merger arbitrage, convertible arbitrage | ## Main arbitrage strategies ### Spatial or exchange arbitrage Buying an asset on one exchange and selling it on another where the price is higher. Common in crypto, where prices on different exchanges can differ, especially in stressed moments. Risks include transfer delays, withdrawal limits, fees and exchange failure. See [Centralized vs Decentralized Exchanges](https://learn.tradelabsai.com/crypto/cex-vs-dex/). ### Cash and carry arbitrage Buying the underlying asset and selling a futures contract when the futures price exceeds the spot price by more than the cost of carry (financing and storage). The position is held to expiry, when the prices converge. See [Cash-and-Carry Arbitrage](https://learn.tradelabsai.com/futures/cash-and-carry-arbitrage/) and [Basis and Basis Trading](https://learn.tradelabsai.com/futures/basis-and-basis-trading/). ### Funding rate and basis arbitrage in crypto Holding spot crypto and shorting a perpetual future to collect funding payments when funding is positive. See [Funding and Basis Arbitrage](https://learn.tradelabsai.com/crypto/funding-and-basis-arbitrage/) and [Funding Rates](https://learn.tradelabsai.com/crypto/funding-rates/). ### ETF arbitrage Authorised participants create or redeem ETF shares when the ETF price drifts from the value of its holdings, keeping the ETF close to fair value. See [What Is an ETF?](https://learn.tradelabsai.com/markets/what-is-an-etf/). ### Options parity arbitrage Put call parity links the prices of calls, puts, the underlying and interest rates. If they get out of line, traders can build offsetting positions to capture the difference. See [Put-Call Parity](https://learn.tradelabsai.com/options/put-call-parity/). ### Merger arbitrage After a takeover is announced, the target's shares usually trade below the offer price. Merger arbitrageurs buy the target (and, in stock deals, short the acquirer) to capture the gap if the deal closes. See [Mergers and Acquisitions](https://learn.tradelabsai.com/fundamentals/mergers-and-acquisitions/). **Example: Merger arbitrage** Company X agrees to buy Company Y for $50 cash per share, closing in about six months. Y trades at $48.00. An arbitrageur buys Y, aiming to earn $2.00, or about 4.2% in six months. If the deal closes, they earn the spread. If regulators block it, Y might fall back to $38, a $10 loss. The market price implies roughly an 83% chance of completion if those are the only two outcomes: 48 = p × 50 + (1 minus p) × 38, so p = 10 / 12. Merger arbitrage is really a bet on deal completion. ### Statistical arbitrage Trading many related securities based on statistical relationships rather than exact equivalence. See [Statistical Arbitrage](https://learn.tradelabsai.com/strategies/statistical-arbitrage/). ## Why arbitrage is never fully riskless - **Execution risk:** prices move before all legs are filled. - **Costs:** fees, spreads and taxes can exceed the gap. See [All-In Trading Cost](https://learn.tradelabsai.com/orders/all-in-trading-cost/). - **Financing risk:** borrowing costs change, or lenders demand more margin. - **Divergence risk:** the gap can widen before it closes, forcing exits at a loss. This sank Long Term Capital Management in 1998. See [The Collapse of LTCM](https://learn.tradelabsai.com/history/the-collapse-of-ltcm/). - **Counterparty and platform risk:** an exchange or broker can fail. See [Market, Credit and Counterparty Risk](https://learn.tradelabsai.com/portfolio/counterparty-risk/). - **Event risk:** deals can collapse and regulations can change. ## Who does arbitrage Most simple arbitrage is captured by firms with fast technology and low costs, so gaps close within milliseconds. Opportunities that remain for individuals tend to carry real risk or require patience and capital, such as merger spreads or basis trades. ## Frequently asked questions ### What is an arbitrage strategy? A strategy that tries to profit from price differences between identical or closely linked assets, usually by buying one and selling the other. ### Is arbitrage risk free? Rarely in practice. Execution, costs, financing, divergence and counterparty risks mean most arbitrage carries some risk. ### What is merger arbitrage? Buying the shares of a company being acquired below the offer price, betting that the deal will close and the gap will be paid out. Next, learn how traders earn income by holding higher yielding assets in [Carry Trading](https://learn.tradelabsai.com/strategies/carry-trading/). ## Continue learning - Next lesson: [Carry Trading](https://learn.tradelabsai.com/strategies/carry-trading/) - Previous lesson: [Spread Trading](https://learn.tradelabsai.com/strategies/spread-trading/) - Related: [Spread Trading](https://learn.tradelabsai.com/strategies/spread-trading/): Spread trading buys one contract and sells a related one to profit from changes in the difference between them. Learn the main types, margins and risks. - Related: [Arbitrage](https://learn.tradelabsai.com/markets/arbitrage/): Arbitrage is profiting from price differences for the same thing in different places. Learn the main types, why opportunities vanish fast and the hidden risks. - Related: [Cash-and-Carry Arbitrage](https://learn.tradelabsai.com/futures/cash-and-carry-arbitrage/): Cash and carry arbitrage buys an asset and sells its futures when futures are rich versus carry costs. Learn the formula, gold, index and crypto examples, and risks. - Related: [Funding and Basis Arbitrage](https://learn.tradelabsai.com/crypto/funding-and-basis-arbitrage/): Funding and basis arbitrage buys crypto spot and shorts perps or futures to earn the premium while staying neutral. Learn the mechanics, returns and risks. - Related: [Statistical Arbitrage](https://learn.tradelabsai.com/strategies/statistical-arbitrage/): Statistical arbitrage trades many small, mean reverting mispricings across a portfolio of securities. Learn how stat arb works, its models, costs and risks. - Related: [Put-Call Parity](https://learn.tradelabsai.com/options/put-call-parity/): Put call parity links the prices of calls, puts, the underlying and interest rates. Learn the formula, a worked example, arbitrage logic and synthetic positions.