arbitrage


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Related to arbitrage: Arbitrage pricing theory

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 ?
While arbitrage trade is visibly risk-free and may have the potential to generate better returns on investment than the traditional investment options, one should be aware that this trading strategy is not completely risk-free.
Green, who's been dubbed the "godfather of retail arbitrage," used to be a sales representative for Bosch Power Tools.
Such a betting environment implies that arbitrage opportunities can develop quickly when bookmakers offer slightly different odds.
. Price inefficiencies are easily exploited: The systems that execute arbitrage trading strategies are able to easily locate currencies that are under- or overvalued at the given moment and take advantage of that before a correction takes place.
The left side of the equation is referred to as the "rate side" and the right side of the equation is referred to as the "currency side." A significant p-value would indicate that parity does not hold and the potential for arbitrage exists.
In recent years there is mounting evidence that arbitrage activity does not always match the textbook example, as seen in the case of ETFs.
Owing to the fact that the volatility uncertainty leads to additional source of risk, the classical definition of arbitrage will no longer be adequate.
Special situations, credit and merger arbitrage funds in the liquid alternative event-driven sub-index gained 0.6% in August, 11 basis points behind the HFRX event-driven index.
By examining the spot-forward relationship in some specific currency markets and domestic-foreign relationship in corresponding credit markets, the main objectives of this research work are a) to find out the frequency of pure arbitrage conditions; b) to indentify the underlying factors that may lead to the occurrence of pure arbitrage conditions; c) to test the accuracy of the model that we build for predicting the pure arbitrage conditions; and d) to summarize the rules regarding how the changes in exchange rates and interest rates can affect the timings on which the pure arbitrage opportunities occur and end.
The idea behind currency arbitrage is to take advantage of the price differential between spot or cash trades versus the pricing of future or forward value of the same currency.
"Arbitrage funds have been present in the market for a long time.
Considerable attention has been given to exploring the risk and return characteristics of risk arbitrage. That literature is almost unanimous in concluding that risk arbitrage tends to generate positive risk-adjusted returns (Larker and Lys 1987; Dukes, Frohlich and Ma 1992; Karolyi and Shannon 1999; Mitchell and Pulvino 2001; Baker and Savasoglu 2002).