What is arbitrage in finance?

[Selena]

I’ve seen the term what is arbitrage in finance used a lot in investing discussions, especially in crypto and forex, but I’m still not totally clear on how it works. From what I understand, arbitrage is when someone buys an asset at a lower price in one market and sells it at a higher price in another market to make a profit — basically risk-free profit if timed correctly. But is arbitrage really as easy as it sounds? Do regular retail investors use it, or is it mostly automated trading bots and big financial firms doing this?

 

[Oliver]

Arbitrage is a practice where a trader takes simultaneously advantage of the price discrepancy for the same asset in different markets by purchasing it in the cheaper market and selling it in the pricier market thereby making a profit.

 

[Sam]

LOL I tried crypto arbitrage once… spent more on fees than I made in profits. Turns out “risk-free” is a bit of a myth for regular folks. Unless you’ve got lightning-fast internet, super low fees, and maybe a degree in rocket science, you’re probably better off holding your coins than chasing tiny price differences.

 

[Shane John]

Arbitrage in finance is a trading strategy where an investor takes advantage of price differences for the same asset in different markets by buying it at a lower price in one place and selling it simultaneously at a higher price in another, aiming to make a risk-free profit. These opportunities arise when markets are temporarily inefficient, but they usually disappear quickly as prices adjust. In practice, true risk-free arbitrage is rare because transaction costs and execution timing can introduce some risk.