In the foreign exchange market, there are various trading methods, and arbitrage trading is one of them. So what is arbitrage trading and what are its characteristics? Arbitrage refers to the use of fluctuations in foreign exchange rates to earn bid-ask spreads. Arbitrage refers to earning higher interest income by using the difference of savings interest rates between foreign currencies. What is the development background of arbitrage or carry trade? In the early foreign exchange market, the arbitrage portfolio was mainly based on the exchange rate differences between countries because of geography and time. Japan's economic bubble in 1990s was accompanied by zero interest rate for more than ten years, which was the embryonic era of carry trade. After 2000, although the Internet bubble hit the global economy hard, fortunately, the rapid economic rise of China, Indian, Russian and other large emerging countries also brought new hot money into the international capital market, which officially opened the prelude to the era of arbitrage trading. What is the purpose of arbitrage trading? The purpose of carry trade itself is to obtain more funds and invest in the capital market in a safe way. The risk to be considered in arbitrage trading is exchange rate risk. Using different interest rate differences between countries to obtain funds has brought a brand-new look to the foreign exchange trading market. The foreign exchange market is flooded with a large number of model transactions, program transactions and algorithmic transactions, aiming at avoiding the possible exchange rate risks when carrying out carry trades. Foreign exchange arbitrage will inevitably involve the concept of hedge fund. The concept of pure hedging still carries the risk of exchange rate, so hedge funds will not only use one or two currency pairs to hedge, but use more currency pairs.