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arbitrage |
Also found in: Dictionary/thesaurus, Legal, Encyclopedia, Wikipedia, Hutchinson | 0.09 sec. |
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Arbitrage The simultaneous purchase and selling of an asset in order to profit from a differential in the price. This usually takes place on different exchanges or marketplaces. Also known as a "riskless profit". Notes: Here's an example of arbitrage: Say a domestic stock trades also on a foreign exchange in another country, where it hasn't adjusted for the constantly changing exchange rate. A trader purchases the stock where it is undervalued and short sells the stock where it is overvalued, thus profiting from the difference. Arbitrage is recommended for experienced investors only.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.
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The issuers and banks were, in effect, arbitraging their respective tax rates and tax positions by converting fully taxable interest income into tax-exempt dividends. First, and most important, there are concerns that massive fund inflows into the industry are challenging the performance of some traditionally successful hedge fund strategies by arbitraging away profit opportunities. Buying distressed equity or bonds is okay, and so is arbitraging. |
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