What is arbitrage and how does it work?

This move lets traders capitalize on the differing prices for the same said asset across the two disparate regions represented on either side of the trade. Arbitrage occurs when a security is purchased in one market and simultaneously sold in another market, for a higher price.

What are the key takeaways of arbitrage?

Key Takeaways 1 Arbitrage is the simultaneous purchase and sale of an asset in different markets to exploit tiny differences in their... 2 Arbitrage trades are made in stocks, commodities, and currencies. 3 Arbitrage takes advantage of the inevitable inefficiencies in markets. More ...

What is merger arbitrage?

Doing merger arbitrage means you have to lock up your money for a longer period of time plus take on the risk that the merger doesn’t materialize, or you aren’t able to resell your shares at the value you’d aimed for. The foreign exchange market is the largest financial market in the world—and it’s ripe for arbitrage strategies.

Is arbitrage a risk-free profit?

Arbitrage is considered a risk-free profit for the investor or trader. A trader tries to exploit arbitrage opportunities like buying a stock on a foreign exchange where the price hasn't yet adjusted for the fluctuating exchange rate.