Learners Family

Arbitrage is a trading strategy that involves buying and selling the same security or asset in different markets or in different forms in order to take advantage of price differences. For example, an arbitrage trader might buy a stock in one market and sell it in another market where the price is higher, or they might buy a futures contract and sell the underlying asset in the spot market at the same time.

Arbitrage can be used to profit from small price discrepancies that exist between different markets or between different forms of the same asset. It can be a low-risk strategy, as it involves buying and selling the same asset simultaneously, so the trader is not exposed to market risk. However, it can be challenging to identify and execute arbitrage opportunities, as they may be short-lived and require a high level of market knowledge and technical skills.

Arbitrage can be carried out by individual traders or by arbitrage firms that specialize in this type of trading. It is often used in the financial markets, such as the stock, bond, and foreign exchange markets, but it can also be used in other markets, such as the commodity and real estate markets.