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Arbitrage is technically a set of simultaneous transactions where you buy and sell at the same time. Purchasing something and reselling it later for a higher pr
by fanboy123 15y ago
Arbitrage is technically a set of simultaneous transactions where you buy and sell at the same time. Purchasing something and reselling it later for a higher price is not arbitrage.
It is usually used to describe a riskless transaction.
- zecho 15y agoIf you want to get more precise, the benefit of simultaneous or near simultaneous transactions is reduced risk that prices will fluctuate. Arb is just an exploitation of different prices in different markets.
- quanticle 15y agoI'm not sure I agree with the description of arbitrage as "riskless". The arbitrageur is accepting the risk that the arbitrage opportunity will go away in between the buy and the sell. This is true whether you're arbitraging salt via caravans across the Sahara or arbitraging currencies in millisecond trades.
- philwelch 15y agoIt's the idea of simultaneous transactions that makes it riskless. Whether millisecond forex trades can be modeled as "simultaneous" is another question.
- fanboy123 15y agoYep. Also have counterparty risk. Just because you have a contract for a purchase and a sale doesn't guarantee that the transactions will go smoothly.
- chrisaycock 15y ago> Purchasing something and reselling it later for a higher price is not arbitrage. Correct. It's called, "market making".
- gte910h 15y agoNo, having fixed prices with a spread is market making. Taking other peoples offers is not market making.
- pbreit 15y ago> It is usually used to describe a riskless transaction. In the academic sense, yes. In reality, no.