profiting from price differences when the same asset is traded in different markets. For example, an arbitrageur simultaneously buys one contract of silver in the Chicago market and sells one contract of silver at a different price in the New York market, locking in a profit if the selling price is higher than the buying price. It is also the process of selling overvalued and buying undervalued assets so as to bring about an equilibrium where all assets are properly valued.
profit making by buying a security, currency, or commodity at a low price in one market and simultaneously selling in another market at a higher price. Alternately, an arbitrageur borrows in one market and lends in another. The effect is to diminish price differences between markets.
Arbitrage also relates to swap transactions where similar issues of fixed-income securities are exchanged and later resold.
financial transaction involving the simultaneous purchase in one market and sale in a different market with a profitable price or yield differential. True arbitrage positions are completely hedged-that is, the performance of both sides of the transaction is guaranteed at the time the position is assumed-and are thus without risk of loss. Aperson who engages in arbitrage is called an arbitrageur or arb.
profiting from differences in price when the same security, currency, or commodity is traded on two or more markets. For example, an arbitrageur simultaneously buys one contract of gold in the New York market and sells one contract of gold in the Chicago market, locking in a profit because at that moment the price on the two markets is different. (The arbitrageur's selling price is higher than the buying price.) Index arbitrage exploits price differences between stock index futures and underlying stocks. By taking advantage of momentary disparities in prices between markets, arbitrageurs perform the economic function of making those markets trade more efficiently.
buying in one market, selling simultaneously in another to make a profit.
Example: Graham bought gold in London for $500 per ounce; simultaneously she sold it in New York for $502. The arbitrage allowed $2 profit per ounce, less transaction costs.buying one type of security and selling an equivalent to make a profit.
Example: Baker bought bonds for $5,000 that could be converted into 500 shares of stock. Simultaneously, he sold 500 shares of stock at $11 per share. He earned $500 for this arbitrage, minus transaction costs.
