What is Arbitrage?
Arbitrage: Profiting from a price gap between two markets.
Where Arbitrage fits
Arbitrage is part of Investing & Returns in Finance. Investing trades money today for expected returns tomorrow. ROI and payback judge a project, compounding grows it, and the rule of 72 estimates doubling time.
Practical tip
Compare options by return per unit of risk, not return alone.
Related terms
- Dividend
- A share of profit paid out to shareholders.
- Bond
- A loan you give to a company or government for interest.
- Hedging
- Taking an offsetting position to reduce risk.
- Leverage
- Using borrowed money to magnify returns, and risks.
- Asset allocation
- How an investor splits money among stocks, bonds and cash.
- ETF
- A fund holding many assets that trades like a single stock.
- Risk tolerance
- How much loss an investor can accept without panicking.
Formulas you will use with it
Test yourself
Which term means: “Profiting from a price gap between two markets.”?
Arbitrage · ETF · Bond
Answer: Arbitrage
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