Arbitrage Definition

Definition: It refers to buying of one item and the selling of the same item for a higher price in the same or different markets. Thus, it is a profit making activity, and somebody who takes part in arbitrage is known as an arbitrageur. For example, if the good A is trading at $5 in London and $7 in Paris, an arbitrageur can turn a profit by buying in London and selling in Paris. Arbitrage originally occurred in the currency market, but it is applied in th commodity, futures and stock markets as well.