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In finance, arbitrage is a process where a trader purchases an asset at lower prices and sells it at higher prices in another market. The trader makes a profit due to the difference between buying and selling prices

What Is Arbitrage?

It is trading that exploits the tiny differences in price between identical assets in two or more markets. The arbitrage trader buys the asset in one market and sells it in the other market at the same time in order to pocket the difference between the two prices. There are more complicated variations in this scenario, but all depend on identifying market “inefficiencies.”

Arbitrageurs, as arbitrage traders are called, are usually working on behalf of large financial institutions. It usually involves trading a substantial amount of money, and the split-second opportunities it offers can be identified and acted upon only with highly sophisticated software.