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Finance Dictionary and Glossary of Investment Terms
The simultaneous purchase and selling of a security in order to profit from a differential in the price. This usually takes place on different exchanges or marketplaces.
The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist, but, arbitrage opportunities are often precluded because of transactions costs.
Attempting to profit by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. The ideal version is riskless arbitrage.
An investment technique used by big Wall Street firms and high-rolling investors to cash-in on seemingly insignificant differences between stock indexes and futures contracts on those indexes. Indexes, and futures contracts on those indexes, don''t always move in lock step. When they get out of whack, a nimble arbitrageur can make a lot of money by buying the less expensive one and selling the one that''s more expensive.""Arbs,"" as they''re called, depend on computers. When all the arbs move in the same direction, the overall market can go haywire. Anytime the stock market dramatically surges or falls, it''s a pretty safe bet that the arbitrageurs were somehow involved.
Arbitrage involves the simultaneous purchase of a security in one market and the sale of it or a derivative product in another market to profit from price differentials between the two markets. (See derivative)