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Definition of 'Arbitrage'
The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time.
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Investopedia explains 'Arbitrage'
Given the advancement in technology it has become extremely difficult to profit from mispricing in the market. Many traders have computerized trading systems set to monitor fluctuations in similar financial instruments. Any inefficient pricing setups are usually acted upon quickly and the opportunity is often eliminated in a matter of seconds.
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This influential strategy capitalizes on the relationship between price and liquidity.
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Hedge funds earn big returns for investors. Find out how they do it and whether you can too.
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The Fisher models have the ability to illustrate the expected relationship between interest rates, inflation and exchange rates.
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Look at trades that are profitable when the value of corresponding puts and calls diverge.
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Direct paths to wealth are getting narrower, fewer and may be locked up tight.
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Profiting from arbitrage is not only for market makers--retail traders can find opportunity in risk arbitrage.
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Credit card arbitrage is a way to make some money, but it's a major gamble with devastating risks.
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Discover how these two groups work together to keep the market functioning properly.
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