Arbitrage opportunities arise when there is a price discrepancy for the same asset in different markets, allowing traders to buy low in one market and sell high in another for a risk-free profit. These opportunities are typically short-lived as the actions of arbitrageurs help to restore price equilibrium across markets.

Arbitrage Opportunities

Arbitrage opportunities

Price discrepancy refers to the situation where the price of a security, asset, or product differs across different markets or platforms, often due to inefficiencies, information lags, or arbitrage opportunities. Traders and investors can exploit these discrepancies to achieve risk-free profits, although such opportunities are typically short-lived as markets adjust to restore equilibrium.

price discrepancy

same asset

different markets

buy low

sell high

Risk-free profit refers to the theoretical return on an investment with zero risk, often associated with government bonds in stable economies. It is crucial for financial models as a benchmark to evaluate the performance of risky investments and to calculate the risk premium.

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