Arbitrage is the simultaneous buying and selling of the same product in different markets in order to benefit from a price difference. The goal is to make a profit without speculating on a rise or fall in price. It purely revolves around taking advantage of temporary price differences.

Arbitrage arises when the same product does not have exactly the same price in two different places.

In efficient markets, prices should be equal everywhere. However, short-term differences can occur, for example between two exchanges or between a share and a derivative based on it.

A trader can then buy at a lower price in one market and immediately sell at a higher price in another market. By executing these transactions quickly, the price difference is captured. At the same time, arbitrage helps prices move back toward each other, making markets more efficient.

Short example:

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