Arbitrage trading is a strategy where investors take advantage of price differences of the same asset in different markets or at different times. The goal is to buy low and sell high to make a profit.
Arbitrage trading works by identifying price discrepancies for the same asset and executing trades to capitalize on these differences. Traders buy the asset where it is priced lower and sell it where it is priced higher.
Arbitrage trading comes in various forms, including spatial arbitrage, temporal arbitrage, statistical arbitrage, merger, convertible, fixed income, cryptocurrency, risk-free and cross-border arbitrage.
Advantage of arbitrage trading is its potential to generate quick and relatively low-risk profits by exploiting price differentials for the same asset in different markets or at different times.
The arbitrage trading strategy involves swiftly capitalizing on price discrepancies of the same asset in different markets or at different times to secure quick and often risk-mitigated profits.
An investor buys a stock on the London Stock Exchange at £80 and simultaneously sells it on the New York Stock Exchange at $100, exploiting a temporary price discrepancy and the exchange rate to make a profit.