What is Arbitrage?
Arbitrage is a strategy that investors use while trading where they purchase an asset in one market and sell the same in a different market or stock exchange. This investing strategy helps the investors generate profit through an asset’s varying prices in different markets. Big institutions, hedge funds, and professional traders take advantage of this investing strategy to generate profit in large volume. Arbitrage is a practice where traders take benefit of market inefficiency. The person exercising this strategy is called an “Arbitrageur”.
Geeky Takeaways:
- Arbitrage is an investing strategy practiced by investors to generate high profits out of market inefficiency.
- It is one of the oldest approaches used in trading to take advantage of the price variation of an asset in different markets.
- It suggests purchasing an asset in one market and selling it in another at a high price.
- The difference between the purchasing and selling price of an asset is known as the “Spread”.
- There are various types of arbitrage which include pure, merger, and convertible arbitrage.
Table of Content
- How Does Arbitrage Work?
- Example of Arbitrage
- Types of Arbitrage
- Benefits of Arbitrage
- Drawbacks of Arbitrage
- Conditions for Arbitrage
- Trading with Arbitrage
- Conclusion
- Frequently Asked Questions(FAQs)
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