Arbitrage is a trading strategy that takes advantage of price discrepancies in different markets. It is the practice of buying an asset in one market and simultaneously selling it in another market at a higher price, in order to make a profit.
Arbitrage can occur in different markets, such as stocks, commodities, currencies, and even in different exchanges or platforms. It is based on the principle that the price of an asset will be the same in all markets, but due to various factors such as supply and demand, taxes, regulations, and even inefficiencies, prices can differ.
There are different types of arbitrage, such as:
- Spatial arbitrage: when an asset is bought in one location and sold in another location.
- Temporal arbitrage: when an asset is bought at one time and sold at a different time.
- Statistical arbitrage: when an asset is bought and sold based on statistical analysis and patterns.
Arbitrage can be a complex and risky strategy, as it requires quick action and a good understanding of the markets. It also requires a significant amount of capital, as well as a good knowledge of the asset, its market, and the regulations. Additionally, arbitrage opportunities are becoming increasingly rare due to the high competition and advancements in technology which make it easier for traders to spot and exploit these opportunities.