# Help me understand Balancer arbitrage **URL:** \ **Category:** General Chat\ **Created:** [April 25, 2021, 7:01pm UTC](https://forum.balancer.fi/t/help-me-understand-balancer-arbitrage/1808 "2021-04-25T19:01:45Z")\ **Posts on this page:** 5\ **Page:** 1
**Author:** ![Margined](https://avatars.discourse-cdn.com/v4/letter/m/f6c823/32.png) [@Margined](https://forum.balancer.fi/u/Margined)\ **Post date:** [April 25, 2021, 7:01pm UTC](https://forum.balancer.fi/t/help-me-understand-balancer-arbitrage/1808/1 "2021-04-25T19:01:45Z")
I scratch my head trying to understand how Balancer incentivise traders to arbitrage index funds - and paying a fee to LPs. I understand what index funds are and what are the benefits for LPs. However, when it comes to arbitragers I don’t get it. [This article](https://arnauramiomateu.medium.com/understanding-balancer-protocol-frmo-0-to-100-998ba20c6834) gives a short description of the process but I must be dumb because I still don’t understand what incentivise traders to do arbitrage with fees that can range between 0.0001% and 10%. ![Screenshot from 2021-04-25 20-54-26](https://canada1.discourse-cdn.com/flex027/uploads/balancer/original/1X/f3f20069f9bea76ac50d2d07f74df5a38731938a.png) Could you please give an example or ELI5 ? ---
**Author:** ![markus](https://yyz1.discourse-cdn.com/flex027/user_avatar/forum.balancer.fi/markus/32/880_2.png) [@markus](https://forum.balancer.fi/u/markus)\ **Post date:** [April 26, 2021, 12:12pm UTC](https://forum.balancer.fi/t/help-me-understand-balancer-arbitrage/1808/2 "2021-04-26T12:12:23Z")
The arbitrager would take the fee into account when deciding to arb the pool. For example, suppose a pool is in such a state that you can buy 1 ETH for 2200 DAI plus fees from it. If the pool’s fees are 10%, then you’d have to send (2200+220 = 2420) DAI to the pool to get that 1 ETH. If you can sell that ETH somewhere else for 2400 DAI, you’d be losing money, so you wouldn’t do the arbitrage. If the fee was 1%, 1 ETH would cost you (2200+22 = 2222) DAI, so you’d be inclined to buy 1 ETH from the pool and sell it for 2400 DAI, netting 178 DAI in the process. ---
**Author:** ![Margined](https://avatars.discourse-cdn.com/v4/letter/m/f6c823/32.png) [@Margined](https://forum.balancer.fi/u/Margined)\ **Post date:** [April 26, 2021, 2:27pm UTC](https://forum.balancer.fi/t/help-me-understand-balancer-arbitrage/1808/3 "2021-04-26T14:27:13Z")
Hi Markus, Thanks for answering my question and giving an example. What incitate arbitragers is they can buy an asset bellow the market price. In your example, a pool has an asset to sell, but what determine arbitragers can buy 1 ETH for 2200 DAI + fee from it ? I understand that arbitrage can occurs after there is a certain difference with the market price, but is it the configuration of the pool ? Also, what happen when a pool has an asset to buy ? Sorry for asking so much questions but I plan to distribute a token with Balancer and I would like to get more familiar with the protocol. Thanks ---
**Author:** ![markus](https://yyz1.discourse-cdn.com/flex027/user_avatar/forum.balancer.fi/markus/32/880_2.png) [@markus](https://forum.balancer.fi/u/markus)\ **Post date:** [April 26, 2021, 6:43pm UTC](https://forum.balancer.fi/t/help-me-understand-balancer-arbitrage/1808/4 "2021-04-26T18:43:25Z")
The price at which the pools sells tokens is defined by the current balances of the pool and the weights of the tokens. Check out [this section of the whitepaper for the equations](https://balancer.finance/whitepaper/#out-given-in) ![image](https://canada1.discourse-cdn.com/flex027/uploads/balancer/original/1X/7319529e68c0f12e8c0b87c561bc25a5b4decebc.png) ---
**Author:** ![Margined](https://avatars.discourse-cdn.com/v4/letter/m/f6c823/32.png) [@Margined](https://forum.balancer.fi/u/Margined)\ **Post date:** [April 27, 2021, 8:57am UTC](https://forum.balancer.fi/t/help-me-understand-balancer-arbitrage/1808/5 "2021-04-27T08:57:39Z")
Thanks Markus, I’ll have a look.