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An arbitrage pair occurs when the same asset trades at different prices on different platforms. In an environment of fragmented liquidity—especially between exchanges and over-the-counter (OTC) platforms—such discrepancies are more frequent and can persist longer.
"Exhausting an arbitrage pair" means repeatedly exploiting the price difference until it disappears. For example, if Bitcoin is listed at $50,000 on an OTC desk and $50,300 on a major exchange, a trader can buy OTC and sell on the exchange, locking in the spread. Repeating these transactions causes the price to rise on the cheaper platform and fall on the more expensive one. As a result, the difference shrinks and disappears completely—the pair is "drained."
OTC arbitrage opportunities arise due to delays in price updates, inventory imbalances, risk restrictions, or slow hedging. Unlike the public order book, OTC prices may not react to the market immediately.
However, this type of arbitrage is not completely risk-free. There are execution risks, settlement delays, counterparty risk, commissions, and capital restrictions. In a rapidly changing market, the spread may disappear before the trade is completed.
However, arbitrage contributes to market efficiency: by eliminating price discrepancies, participants align quotes and synchronize liquidity between platforms.
"Exhausting an arbitrage pair" means repeatedly exploiting the price difference until it disappears. For example, if Bitcoin is listed at $50,000 on an OTC desk and $50,300 on a major exchange, a trader can buy OTC and sell on the exchange, locking in the spread. Repeating these transactions causes the price to rise on the cheaper platform and fall on the more expensive one. As a result, the difference shrinks and disappears completely—the pair is "drained."
OTC arbitrage opportunities arise due to delays in price updates, inventory imbalances, risk restrictions, or slow hedging. Unlike the public order book, OTC prices may not react to the market immediately.
However, this type of arbitrage is not completely risk-free. There are execution risks, settlement delays, counterparty risk, commissions, and capital restrictions. In a rapidly changing market, the spread may disappear before the trade is completed.
However, arbitrage contributes to market efficiency: by eliminating price discrepancies, participants align quotes and synchronize liquidity between platforms.
