Arbitrage
Exploiting price differences across markets for guaranteed profit
Definition
Arbitrage is the simultaneous buying and selling of an asset in different markets to profit from price discrepancies. True arbitrage is risk-free in theory — buying where price is low and selling where it is higher, capturing the spread. In practice, execution speed, transaction costs, and market efficiency reduce most arbitrage opportunities. Statistical arbitrage (stat arb) exploits correlated asset price divergences that are expected to converge.
Example
If Apple stock trades at $150.00 on NYSE and $150.05 on NASDAQ simultaneously, an arbitrageur can buy on NYSE and sell on NASDAQ, capturing $0.05 per share instantly. High-frequency trading firms execute millions of such trades per second, which is why visible price discrepancies rarely last more than milliseconds.
Related Terms
Frequently Asked Question
What is arbitrage?
Arbitrage exploits price differences for the same asset across different markets, buying low in one market and selling high in another simultaneously. In theory it's risk-free; in practice, speed and costs matter.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.