Arbitrage

Arbitrage is a trading strategy that involves buying and selling the same asset in different markets simultaneously to profit from price discrepancies. Because these price differences are usually small and quickly corrected by the market, arbitrage opportunities require quick execution and often involve large volumes to be profitable. Arbitrage helps maintain market efficiency by ensuring that prices in different markets converge to the same level.

Example

A trader notices that a stock is priced at $100 on one exchange and $101 on another. By buying the stock on the cheaper exchange and selling it on the more expensive one, the trader profits from the $1 difference per share.