What is a 'Free Lunch'

A free lunch is a situation in which a good or service is received at no cost, with the true cost of the good or service ultimately borne by some party, which may even include the recipient. A "free lunch" was often offered during the 1800s to bar patrons who ordered drinks as a way of bringing in more business, though in modern times the term is used to describe anything purportedly received for free. From this, "free lunch" became an investment slang term referring to unlimited riskless profits.



BREAKING DOWN 'Free Lunch'

The phrase "there's no such thing as a free lunch" is commonly used to describe situations in which investors are not able to consistently make large profits without bearing the risk of a potential loss.


For example, a free breakfast offered by a hotel to entice consumers to stay the night is not free, as the hotel room is still being paid for. Likewise, while investors can continue to make money in a bull market, there is an underlying cost - risk.

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