You can use any token or coin for arbitrary trading, they just have to have different prices on any exchange and have enough liquidity so if you want to buy or sell the order goes through. Bitcoin has been the popular coin for doing this because on all major exchange the price has never been the same.

For altcoins they can be dumped at anytime so you have to be careful with this, I would go for altcoins with very fast confirmations to avoid delay and those with less transaction fees so I can realized enough profit. Having to arbitrage trade with erc20 token would not be advisable since there is such much fees involved.