Arbitrage

 

Definition: Arbitrage is the process of profiting from the simultaneous sale and purchase of a security.

 

 

Additional Info: This is most likely to occur when a stock is listed on two separate exchanges (possibly in different countries) and there is a difference in the perceived value of the two listings. The investor will sell the overbought listing and buy the over sold. Profit is made as the stock’s value comes back in to line.
Another form of Arbitrage is where an investor will follow two closely correlated securities such as Gold and the Australian Dollar. Investors will work out a ratio for the correlation in price and act once this ratio becomes noticeably stretched or compacted.

Related Terms: Gold Prices - Australian Dollar Rates - The Australian Currency

 

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