Rebate Arbitrage

Rebate arbitrage is a trading strategy where participants execute high volumes of trades to collect exchange rebates rather than focusing on directional profit. Exchanges often pay rebates to market makers for adding liquidity to the order book.

By carefully placing limit orders that are immediately matched by takers, traders can capture these rebates while keeping their net position near zero. This strategy requires extremely low latency and sophisticated execution systems to be profitable.

It can contribute to high reported trading volumes, which may not always reflect genuine economic interest in the asset. Regulators and exchanges often scrutinize this activity to ensure it does not distort market integrity.

It highlights the influence of incentive structures on market microstructure.