What is arbitrage & how does it work?

Arbitrage describes the act of buying a security in one market and simultaneously selling it in another market at a higher price, thereby enabling investors to profit from the temporary difference in cost per share. The arbitrage strategy can be used in many markets including those for trading stocks and those for currency trading .

What is the simplest form of arbitrage?

The simplest form of arbitrage is purchasing an asset in a market where the price is lower and simultaneously selling the asset in a market where the asset’s price is higher. Arbitrage is a widely used trading strategy, and probably one of the oldest trading strategies to exist. Traders who engage in the strategy are called arbitrageurs.

What is triangular arbitrage?

Triangular arbitrage. Typically applied in the foreign exchange market, this strategy exploits discrepancies in exchange rates among three different currencies to make a profit. Arbitrage is prevalent in financial markets, but it also takes place all around us on a regular basis.

What is spatial arbitrage?

Spatial arbitrage involves exploiting price differences for the same asset in different geographic locations. For example, a commodity might be cheaper in one country and more expensive in another, allowing traders to buy in the cheaper market and sell in the more expensive market.