Arbitrage profits from price differences of the same asset in different markets. Buy low in one place, sell high in another. The trade is theoretically risk-free because the asset is identical. In practice, risks exist: execution delays, currency fluctuations, and the chance the price gap closes before you finish. Pure arbitrage is rare and short-lived.

Examples are common. A stock trades at $100 on one exchange and $100.50 on another. A trader buys on the first and sells on the second, pocketing the difference. Currency arbitrage exploits exchange rate mismatches across banks. Crypto markets, which are fragmented and less efficient, have offered many opportunities. Convertible bond arbitrage pairs a bond with its underlying stock.

Arbitrage serves a purpose. It forces prices toward alignment. When traders exploit a gap, they buy the cheap asset and sell the expensive one, which pushes the prices together. This process, called arbitrage, makes markets more efficient. The profits go to those who spot the gap first and execute fastest. Speed and technology matter more than insight in modern arbitrage.

Common types

• Pure arbitrage
• Statistical arbitrage
• Convertible bond arbitrage
• Currency arbitrage
• Crypto arbitrage