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What does Arbitrage Mean?

Arbitrage is the practice of buying a security/product in one market and selling it in another, in an effort to capitalize on price difference.

Arbitrage can take many forms in trading: buying a security in one market and selling it in another for a better price (market arbitrage); borrowing money in one currency at a lower interest rate in order to pay off debt in another currency with a higher interest rate (currency arbitrage); buying and selling the same security on different exchanges or between spot prices of a security and its future contract; and so on.

Opportunities for arbitrage exist but only very rarely, and once they’re discovered the market tends to correct the price inefficiency very quickly.

Are the Markets Efficient?
What is Dividend Arbitrage?

Keywords: interest rates, trading, arbitrage, stock market correction, spot price,