Arbitrage

Arbitrage trades exist because markets are not perfectly efficient. Opportunities arise across a wide range of securities but exist for only a short period of time due to trading activity.

Arbitrage as a trading opportunity exists in stocks, commodities, and currencies and arises because of inefficiencies in these markets. While the Arbitrager will trade to exploit these inefficiencies, the end effect is that these inefficiencies will be resolved by the trading activity itself. In short, Arbitrage Trade involves the simultaneous buying and selling of a security at two different prices in two different markets, potentially resulting in profits without risk. If markets were perfectly efficient, then arbitrage opportunities could not exist. In reality, markets are not perfect, so arbitrage opportunities will arise. What could impede the opportunities to make an arbitrage trade profitable are the costs of making the transactions.