Explore commonly used personal finance terms.
Arbitrage is the practice of exploiting price differences in separate markets to make a profit. For example, a trader might buy an asset in one market where it is undervalued and sell it in another where it is overvalued, earning a risk-free profit. This strategy requires rapid transactions to capitalize on small price differences, commonly seen in foreign exchange or stock markets. Arbitrage plays a vital role in maintaining market efficiency, though it requires sophisticated knowledge and technology for timely execution.
