What Is Arbitrage?

Daniel Penzing
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Arbitrage is the simultaneous buying and selling of an asset to profit from a difference in the price. Although it?s impossible to profit all of the time, arbitrage is a very popular way to trade and generate income. The investor/trader can make money simply by purchasing and selling, and sometimes there is no risk involved.

It can be very profitable to identify a market that is inefficient in pricing, and then take advantage of that difference. The most common market types that arbitrage occurs in are foreign exchange, stocks, and futures. It is a prevalent way of trading because the trader will normally pay little or no commission to execute trades on a particular asset but still make money.