TL;DR
Arbitrage is profiting from price differences of the same token across different exchanges or pools — buying where it’s cheaper and simultaneously selling where it’s more expensive.
If SOL/USDC is $150 on Raydium and $151 on Orca, an arbitrageur buys on Raydium and sells on Orca, pocketing the $1 difference (minus fees). On Solana, this happens in a single atomic transaction: the bot swaps on both DEXs in one transaction, guaranteeing profit with zero risk (if the opportunity exists). These opportunities typically last milliseconds before bots compete them away.
DEX arbitrage: price differences between AMM pools (Raydium vs Orca vs PumpSwap). CEX-DEX arbitrage: price differences between centralized and decentralized exchanges. Triangular arbitrage: profiting from pricing inconsistencies across three or more token pairs (A→B→C→A). Liquidation arbitrage: profiting from DeFi liquidation penalties. Most retail traders can’t compete with professional arbitrage bots on speed.
Even if you don’t arbitrage directly, arbitrage bots benefit you by keeping prices consistent across DEXs. Without arbitrageurs, the same token could have wildly different prices on different platforms. Jupiter’s aggregator effectively gives you the benefit of arbitrage by routing your trade through the cheapest path. Arbitrage also creates the volume that generates LP fees for liquidity providers.