Arbitrage

Arbitrage is the practice of taking advantage of a price differential between two or more markets. This involves striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. It is simply a risk-free profit. A person who engages in arbitrage is called an arbitrageur—such as a bank or brokerage firm. Arbitrage applies to bonds, stocks, derivatives, commodities and currencies.