What is "Arbitrage" meaning?

Arbitrage is a financial strategy where an investor buys an asset in one market at a lower price and simultaneously sells it in another market at a higher price. It is commonly used in trading, particularly in currency, commodity, and cryptocurrency markets, to take advantage of market inefficiencies.

Example

“A trader spotted a $20 difference in Bitcoin prices between exchanges and executed an arbitrage trade to lock in a quick profit.”

How is "Arbitrage" used in business?

In business and finance, arbitrage plays a role in maintaining market efficiency by balancing price differences. Institutional investors, hedge funds, and algorithmic traders often use arbitrage strategies to generate risk-free or low-risk returns. It's also relevant in areas like ecommerce, real estate, and international trade.

Pro Tip

Arbitrage opportunities are usually short-lived. Speed, access to multiple markets, and low transaction fees are essential for success.

Related Terms

Spread Trading, Market Efficiency, Price Discrepancy, Risk Arbitrage