Arbitrage
Arbitrage is a technique used to take advantage of differences in price in substantially identical assets across different markets...
Arbitrage is a technique used to take advantage of differences in price in substantially identical assets across different markets. An arbitrageur will buy foreign currency, bonds, stocks and commodities cheap in one market to sell more expensively in another. For example, if wheat is cheaper in Chicago than in London he will buy in Chicago and sell in London. Similarly, if the same stocks trade at 100p on the New York Stock Exchange and 101p in Tokyo, he will buy the first and sell the second. A successful arbitrage trade like this will see no net cash flow and carries no risk of loss. As it exploits the inefficiencies of current prices, it also helps establish equilibrium in markets by removing them.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
What the Employment Rights Bill means for your workplace rights
New workplace reforms are set to give employees new rights to benefits and flexible working
By Marc Shoffman Published
-
GSK share price surges after $2.2bn Zantac drug settlement
GSK has settled lawsuits in the US that alleged the drugmaker’s now-discontinued heartburn drug Zantac triggered cancer
By Chris Newlands Published