Trader's Glossary

Arbitrage

Arbitrage is the practice of profiting from the price differentials of two markets by striking deals that capitalise on the difference between them. For instance, selling an asset that is overpriced in one market in order to buy it in another market where it is cheaper. Essentially arbitrage results from price inefficiencies and has become extremely difficult for individual traders to exploit. This is because large financial institutions employ advanced algorithmic trading programs that are designed to scan the markets for these inefficiencies and quickly take advantage of them.