How does arbitrage work?

Understanding Arbitrage. Arbitrage can be used whenever any stock, commodity, or currency may be purchased in one market at a given price and simultaneously sold in another market at a higher price. The situation creates an opportunity for a risk-free profit for the trader. Arbitrage provides a mechanism to ensure that prices do not deviate ...

What is triangular arbitrage?

Triangular arbitrage involves the exchange of a currency for a second, then a third and then back to the original currency in a short amount of time. Market arbitrage refers to the simultaneous buying and selling of the same security in different markets to take advantage of a price difference.

What is Political arbitrage?

Arbitrage is the purchase and sale of an asset at the same time in order to profit from a difference in the price. Political arbitrage activity involves trading securities based on knowledge of potential future political activity.

What is merger arbitrage?

Doing merger arbitrage means you have to lock up your money for a longer period of time plus take on the risk that the merger doesn’t materialize, or you aren’t able to resell your shares at the value you’d aimed for. The foreign exchange market is the largest financial market in the world—and it’s ripe for arbitrage strategies.