Arbitrage refers to the practice of taking advantage of a price difference between the market and successfully making a profit from the trade. Arbitragers buy an asset where the price is low and sell it in another market where the price is higher. In the process, they gain from the difference.
For example, a trader trades in both Tokyo Stock Exchange and New York Stock Exchange. On a given day, stock of Company ABC is trading for Japanese ¥ 62.50 in Tokyo and USD 48 in New York stock exchange. Also, suppose the exchange rate between $/ ¥ is 1.37 or value of USD 1 is ¥ 1.37. Hence, $48 = ¥65.76. Here the price difference between the two exchanges creates an arbitrage opportunity encouraging trader to buy the stocks in Tokyo exchange and selling it at New York exchange for a profit of ¥ (65.76 – 62.50) or ¥3.26 per share.
Arbitrage trading is more common in the foreign exchange market, and our software helps you identify real-time price gaps between two assets and helps you make risk free profits.*
Features of our Arbitrage Trading Software.