Legal Definitions - arbitrage

Definition: Arbitrage is the practice of buying and selling the same security in different markets at the same time to make a profit from the price difference.

For example, if a stock is trading for $10 on one exchange and $12 on another exchange, an arbitrageur would buy the stock for $10 on the first exchange and sell it for $12 on the second exchange, making a profit of $2 per share.

Arbitrage can also refer to other types of trades, such as:

• Currency arbitrage: Buying a currency in one market and selling it in another to take advantage of differences in exchange rates.
• Risk arbitrage: Buying and selling assets that are probably, but not necessarily, equivalent, such as corporate stock in a potential merger or takeover.
• Time arbitrage: Buying a commodity for immediate delivery and selling it for future delivery, with the hope of profiting from the difference in prices.

Arbitrage is a common practice in financial markets and can be done by individuals or large institutions. However, it requires quick thinking and a deep understanding of market dynamics to be successful.