Arbitrage is a financial and economic concept that refers to the practice of exploiting price differences for the same asset, security, or commodity in different markets to make a profit with little or no risk. In essence, it involves taking advantage of discrepancies in market prices.
Here’s how it works:
Identifying Discrepancies: Arbitrageurs constantly monitor various markets or assets to identify situations where the same asset is priced differently in different markets or at different times.
Simultaneous Transactions: Once a price discrepancy is identified, the arbitrageur buys the asset at the lower price in one market and simultaneously sells it at the higher price in another market.
Riskless Profit: Because the arbitrageur is buying and selling the same asset at different prices simultaneously, they lock in a riskless profit, as they are guaranteed to make money regardless of future price movements.
Quick Execution: Arbitrage opportunities often exist for only a short period, some…
