What is Arbitrage?
Arbitrage is a trading strategy that takes advantage of price discrepancies in different markets. It is a way to make a profit by buying and selling a security in different markets simultaneously. The aim is to make a profit from the difference in price of the same security in two different markets.
How Does Arbitrage Work?
Arbitrage works by taking advantage of the price difference between two different markets. For example, a trader may buy a security in one market and then sell it in another market for a higher price. The trader will then pocket the difference between the two prices. This is known as a “riskless” profit since the trader has not exposed themselves to any market risk.
Types of Arbitrage
There are several different types of arbitrage, including:
- Statistical Arbitrage
- Convergence Arbitrage
- Merger Arbitrage
- Risk Arbitrage
- Cash & Carry Arbitrage
- Convertible Arbitrage
- Volatility Arbitrage
Each type of arbitrage has its own set of risks and rewards. It is important to understand the risks associated with each strategy before investing.
Conclusion
Arbitrage is a trading strategy that takes advantage of price discrepancies in different markets. It is a way to make a profit without exposing oneself to any market risk. However, it is important to understand the risks associated with each type of arbitrage before investing. For more information, please see: