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Arbitrage

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Arbitrage

Arbitrage is a financial term that refers to the practice of taking advantage of a price difference between two or more markets. It is a form of trading that seeks to profit from discrepancies in the price of a single asset or related financial instruments by simultaneously buying and selling the asset in different markets. Arbitrage is a risk-free form of trading that can generate profits regardless of the direction of the market.

History of Arbitrage

The concept of arbitrage has been around since the early days of trading. It was first used in the commodities markets, where traders would take advantage of price discrepancies between different markets. As the markets evolved, so did the concept of arbitrage. Today, arbitrage is used in a variety of markets, including stocks, bonds, currencies, and derivatives.

Arbitrage has become increasingly popular in recent years due to the rise of electronic trading and the availability of sophisticated trading algorithms. These algorithms allow traders to quickly identify and take advantage of price discrepancies between different markets. As a result, arbitrage has become an important tool for traders looking to capitalize on market inefficiencies.

Table of Comparisons

Market Price
Stock A $10
Stock B $11
Arbitrage Profit $1

Summary

Arbitrage is a financial term that refers to the practice of taking advantage of a price difference between two or more markets. It is a form of trading that seeks to profit from discrepancies in the price of a single asset or related financial instruments by simultaneously buying and selling the asset in different markets. Arbitrage is a risk-free form of trading that can generate profits regardless of the direction of the market. For more information on arbitrage, please visit websites such as Investopedia, The Balance, and Bloomberg.

See Also

  • Hedging
  • Speculation
  • Market Efficiency
  • Derivatives
  • Options
  • Futures
  • Spread Trading
  • Margin Trading
  • Short Selling
  • Day Trading

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