in the literature, arbitrage is generally divided into "type a" and "type b". there is no risk of losing in type a arbitrage, the chance of winning is one hundred percent. while there is no risk of losing in type b arbitrage, the chance of winning is below one hundred percent. in financial circles, type a is also referred to as "free lunch" and type b as "free lottery ticket".
the form of earnings resulting from a security's acquiring different values in different locations. for example, we used to play marbles when we were kids. while the white bone marble was 5 flat marbles in our street, it was 3 marbles two streets above. now if you buy 30 marbles and 10 white bones from the upper street and exchange them for 5 marbles in your own neighborhood, you will have 50 marbles. the profit you make becomes arbitrage.
ilhan cavcav used to be the king of it. he used to sell the artillery he bought from africa for $50,000 to the big three for millions of dollars.
since no market in the world works very effectively, there are undoubtedly many arbitrage opportunities for those who know how to see.
although mostly in foreign currency, it doesn't have to be like that, of course. arbitrage is to act as an intermediary for any highly liquid commodity, when there is a buyer and a seller who are unaware of each other (and there is a price difference that will make you profit). it is a low-risk trading action that eliminates price differences. if you think of the economy as an electronic circuit, it is kind of equalizing the voltage difference between two points by connecting a short circuit wire between those two points.