arbitrage
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Arbitrage (, ) is the practice of taking advantage of a difference in prices in two or more marketsstriking a combination of matching deals to capitalize on the difference, the profit being the difference between the market prices at which the unit is traded. Arbitrage has the effect of causing prices of the same or very similar assets in different markets to converge.
~37 min read
Article
33 sectionsContents
- Etymology
- Arbitrage equilibrium
- Arbitrage-free pricing approach for bonds
- Conditions for arbitrage
- Price convergence
- Risks
- Example
- Execution risk
- Mismatch
- Counterparty risk
- Liquidity risk
- Gray market
- Types
- Spatial arbitrage
- Crypto arbitrage
- Latency arbitrage
- Merger arbitrage
- Municipal bond arbitrage
- Convertible bond arbitrage
- Depository receipts
- Cross-border arbitrage
- Dual-listed companies
- Private to public equities
- Regulatory arbitrage
- Telecom arbitrage
- Statistical arbitrage
- Gray market
- See also
- Types of financial arbitrage
- Related concepts
- References
- Further reading
- External links
Arbitrage (, ) is the practice of taking advantage of a difference in prices in two or more marketsstriking a combination of matching deals to capitalize on the difference, the profit being the difference between the market prices at which the unit is traded. Arbitrage has the effect of causing prices of the same or very similar assets in different markets to converge.
When used by academics in economics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit after transaction costs. For example, an arbitrage opportunity is present when there is the possibility to instantaneously buy something for a low price and sell it for a higher price.