Arbitrage

Arbitrage refers to the practice of buying and immediately selling the same asset on different exchanges to profit from differences in exchange rates. The asset is purchased on an exchange at a lower price and then immediately sold on another exchange at a higher price, with the difference between the two prices being the profit the trader makes. Opportunities for arbitrage exist as a result of an inefficient market, meaning one in which an asset’s price does not accurately reflect all available information. When traders begin to arbitrage, the market theoretically corrects itself and prices reach equilibrium.