Arbitration

Arbitrage is the practice of profiting from market inefficiencies. It involves taking advantage of price differences of similar securities listed on the same market or price differences of the same security listed on different markets. Arbitrage can also be practiced in derivatives markets, fixed-income markets, between derivatives markets and spot markets, between primary and secondary markets, etc. Arbitrageurs aim to sell at the highest price and buy at the lowest price. As a result, the possible inefficiency eventually disappears or the transaction costs limit the viability for arbitrage.