The best way to do the arbitrage is to have the money (both btc and fiat, since you may not know in advance which way the arbitrage will work) ready at both markets.
Then you can execute both legs of the trade at the same time and exclude the market risk, but on the other hand you will need to commit more capital.
This means you have large amount of money in several exchanges, it might not be a good idea.
Yes, there might be some counterparty risk involved.
One should always choose the exchange carefully - if it's not trustworthy enough to keep money there for few days, should you be keeping your money there for few hours ?
