arbitrage

(redirected from arbitrages)
Also found in: Dictionary, Thesaurus, Legal, Encyclopedia.
Related to arbitrages: arbitrageurs

Arbitrage

The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist, but, arbitrage opportunities are often precluded because of transactions costs.

Arbitrage

An investment practice that attempts to profit from inefficiencies in price by making transactions that offset each other. For example, one may buy a security at a low price and, within a few seconds, re-sell it to a willing buyer at a higher price. Arbitrageurs can keep prices relatively stable as markets try to resist their attempts at price exploitation. Arbitrageurs often use computer programs because their transactions can be complex and occur in rapid succession.

arbitrage

The simultaneous purchase and sale of substantially identical assets in order to profit from a price difference between the two assets. As a hypothetical example, if General Electric common stock trades at $45 on the New York Stock Exchange and at $44.50 on the Philadelphia Stock Exchange, an investor could guarantee a profit by purchasing the stock on the Philadelphia Stock Exchange and simultaneously selling the same amount of stock on the NYSE. Of course, the price difference must be sufficiently great to offset commissions. Arbitrage may be employed by using various security combinations including stock and options and convertibles and stock. See also basis trading, risk arbitrage.

Arbitrage.

Arbitrage is the technique of simultaneously buying at a lower price in one market and selling at a higher price in another market to make a profit on the spread between the prices.

Although the price difference may be very small, arbitrageurs, or arbs, typically trade regularly and in huge volume, so they can make sizable profits.

But the strategy, which depends on split-second timing, can also backfire if interest rates, prices, currency exchange rates, or other factors move in ways the arbitrageurs don't anticipate.

arbitrage

the buying and selling of PRODUCTS, FINANCIAL SECURITIES or FOREIGN CURRENCIES between two or more markets in order to take profitable advantage of any differences in the prices quoted in those markets.

If the price of the same product is different, as between two markets, a dealer, by simultaneously buying in the lower-priced market and reselling in the higher-priced market, stands to make a profit on the transaction (allowing for dealing expenses). Arbitrage thus serves to narrow or eliminate price differentials between markets, with buying in the lower-priced market causing prices to rise there, and selling in the higher-priced market causing prices to fall. See SPOT MARKET, ARBITRAGEUR, SPECULATION, COVERED INTEREST ARBITRAGE.

arbitrage

the buying or selling of PRODUCTS, FINANCIAL SECURITIES or FOREIGN CURRENCIES between two or more MARKETS in order to take profitable advantage of any differences in the prices quoted in these markets. By simultaneously buying in a low-price market and selling in the high-price market a dealer can make a profit from any disparity in prices between them, though in the process of buying and selling the dealer will add to DEMAND in the low-price market and add to SUPPLY in the high-price market, so narrowing or eliminating the price disparity. See SPOT MARKET, FUTURES MARKET, COVERED INTEREST ARBITRAGE.

arbitrage

The simultaneous purchase in one market and sale in another market of a commodity, security,or monies,in the expectation of making a profit on price differences in the differing markets. Generally thought of as involving foreign currency exchanges,in which one enters contracts to buy euros and sell yen and hopefully make money in a moment in time when the exchange rates work out in one's favor (this is highly risky).

References in periodicals archive ?
72) A slightly different take on this approach, recently adopted in different forms by Denmark and the United Kingdom, would be to unilaterally adopt a selective denial rule, but only for transactions that bear certain indicia of international tax arbitrage rather than legitimate business transactions.
tax benefits to be limited or denied is difficult, time-consuming, and endless: [i]is hard to distinguish one form of arbitrage from another, to distinguish arbitrage in general from other tax minimization strategies, [and] to distinguish tax benefits from other benefits that may be enjoyed outside the United States by persons related to the U.
74) By unilaterally collecting a portion of the bilateral surplus, an international prisoner's dilemma game such as international tax arbitrage can be transformed into a chicken game, in which both parties have an incentive to retaliate even if it would result in a Pareto inferior result.
Further, although the double taxation of the mirror rule was addressed by this agreement, the potential for double taxation under the mirror rule with other countries in the world remains and the potential for other international tax arbitrage transactions between the United States and United Kingdom based on corporate residency remains.
If it were the case that international tax arbitrage implicated the violation of some norm, one might rightly demand on the grounds of horizontal equity that government react consistently.
82) In addition, the lack of available information to make such a judgment in the international tax arbitrage context makes the task that much more difficult.
87) The case-by-case approach to international tax arbitrage recognizes this tension, but concludes that no systematic response is possible.
97) In this respect, the proposal is similar to the traditional debate between equity and efficiency in crafting tax policy, while recognizing that the variables implicated in international tax arbitrage are different from those in the purely international or purely domestic context.
100) It has been proposed that this is in fact what countries do in response to international tax arbitrage, because the use of international tax arbitrage as a subsidy is less transparent than direct tax competition and thus less likely to incur retaliation.
109) For example, it might be possible for the United States to utilize harnessing to create a perception of fairness in the issue of international tax arbitrage that could positively influence the behavior of other countries in response, changing the subgame perfect Nash equilibrium from mutual non-cooperation to mutual cooperation.
It is for this reason that alternative suggestions, such as trading international tax arbitrage to certain jurisdictions for a relative gain to the United States in non-tax areas, such as strategic alliances, access to natural resources, or others, would not serve the same end as the harnessing approach in fostering a more harmonized worldwide tax regime, since other countries could rationally react with retaliation without contradicting any underlying international norm of the common good.
This approach reflects the possibility that such transactions were not international tax arbitrage at all, but rather a symptom that Subpart F represented the wrong policy choice for the U.