Arbitrage – Financial Terms

Arbitrage is the technique of simultaneously buying a security at a lower price in one market and selling it at a higher price in another market to make a profit on the spread between the prices. Although the price difference may be very small, arbitrageurs, or arbs, trade huge amounts, so they can make sizable profits. But the strategy, which depends on split-second timing, can also backfire if interest rates or prices move in unanticipated ways.