All About Arbitrage – What is Arbitrage in Financial Terms?
Imagine an investment strategy that allows investors to take advantage of the difference in the price of a certain market or asset. In other words, the investor would profit from the discounted purchase and immediately resell of the product or share in a different market at a higher price. This investment strategy has been in practice since the concept of competing markets was first recognized. In today’s marketplace, this practice is known as arbitrage. An arbitrageur seeks out assets that exhibit certain characteristics that indicate that the market (or markets) is compatible with sustaining a reasonable profit during the exchange. In order for this to happen, one of the following three circumstances must exist: 1. An asset with a reliable future-estimated price is currently trading at a lower price than its monetary value in a market with little or no risk. 2. An asset trades in one market considerably lower than it trades in another. 3. Two different assets are traded at varying pr
