Arbitrage is the process of taking advantage of a price difference between two or more markets. In finance, arbitrage is often used to refer to the practice of buying and selling assets in order to take advantage of differing prices for the same asset. For example, if shares of Company A are trading for $10 per share on the New York Stock Exchange, and shares of the same company are trading for $11 per share on the London Stock Exchange, an arbitrageur could buy shares on the NYSE and sell them immediately on the LSE, making a profit of $1 per share.
Arbitrage can be a risky business, as it involves making simultaneous purchase and sale decisions in different markets. However, because it takes advantage of price differences, it can be a profitable way to earn money.
Arbitrage opportunities can arise in many different markets, including stocks, bonds, commodities, and foreign exchange. For example, if the price of gold is lower in London than it is in New York, an arbitrageur could buy gold in London and sell it immediately in New York, making a profit on the difference in prices.