September 16, 2021

What is Arbitrage?

What is Arbitrage?

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Arbitrage is the ability to profit by both buying and selling the same asset in two different markets at the same time to profit from any difference in the price in two different places. Arbitrage takes advantage of any variations in prices of  the same or similar financial assets listed in different exchanges or in different asset classes. 

Arbitrage opportunities can happen on equity, futures, currencies, options, or cryptocurrency markets. Arbitrage is to take advantage of pricing inefficiencies between multiple markets at the same time. 

Arbitrage is a profitable strategy when an asset can be bought in one market and then immediately sold in another market at a price that is higher. Arbitrage opportunities are very close to a risk-free profits. 

There are many ways to structure arbitrage trades, the primary principle is buying the same asset where it is cheaper and selling it where it is more expensive. This happens when price drifts from the value price in one market versus another.