Arbitrage is a financial strategy that involves taking advantage of price differences for the same asset in different markets. It typically involves buying an asset at a lower price in one market and simultaneously selling it at a higher price in another, making a profit from the price gap.
Types of Arbitrage:
- Retail Arbitrage – Buying discounted products in physical stores and reselling them online for profit.
- Statistical Arbitrage – Using quantitative methods and algorithms to identify pricing discrepancies between related assets.
- Triangular Arbitrage – Exploiting differences in currency exchange rates between three different currencies.
- Risk Arbitrage (Merger Arbitrage) – Investing in stocks of companies involved in mergers and acquisitions, aiming to profit from potential price changes.
Arbitrage is commonly used in financial markets, e-commerce, and cryptocurrency trading. While it presents profitable opportunities, it also requires careful analysis and quick execution to succeed.