InsiderFlow › Glossary › What is arbitrage?
Arbitrage is profiting from price differences for the same asset across markets: buy where it's cheaper, sell where it's dearer, simultaneously.
If a stock trades at 100 in New York and 100.30 in London, the arbitrageur buys in New York and sells in London, pocketing 30 cents with no directional risk. At industrial scale these gaps last milliseconds: the territory of high-frequency trading.
Arbitrage is why prices stay aligned across exchanges, ETFs and futures: armies of algorithms close every gap as soon as it opens. Paradoxically, by chasing profits it makes markets more efficient.
On InsiderFlow these concepts come alive on real data: what big funds and insiders are buying, explained every day.
Almost never in the pure sense: gaps visible to the naked eye have already been closed by algorithms.
Strategies exploiting historical divergences between correlated securities: not risk-free, as the LTCM fund discovered in 1998.