arbitrage


arbitrage
The purchase of a commodity against the simultaneous sale of a commodity to profit from unequal prices. The two transactions may take place on different exchanges, between two different commodities, in different delivery months, or between the cash and futures markets.
See spreading. The CENTER ONLINE Futures Glossary
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(1) In theory, arbitrage is the simultaneous purchase and sale of two identical commodities or instruments to take advantage of price variations in different markets. For example, the purchase of gold in London and the simultaneous sale of gold in New York.
(2) In practice, the term is used to refer to the simultaneous purchase and sale of any two contracts or commodities with largely offsetting risks. For example, the purchase of two-year Treasuries and the sale of futures contracts for an equivalent amount.
(3) In municipal finance, the specific practice of investing funds obtained at a tax-preferred low rate of interest in higher-yielding investments until the funds are needed for the purpose intended. American Banker Glossary
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The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist, but, arbitrage opportunities are often precluded because of transactions costs. Bloomberg Financial Dictionary
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The simultaneous purchase of cash, futures, or options in one market against the sale of cash, futures or options in a different market in order to profit from a price disparity. Chicago Mercantile Exchange Glossary
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The purchase (or sale) of an instrument ( instruments) and the simultaneous taking of an equal and opposite position in a related instrument to exploit mispricing. Also defined as the making of riskless, guaranteed profits by exploiting market inefficiencies. An activity undertaken by arbitrageurs. Dresdner Kleinwort Wasserstein financial glossary
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The simultaneous purchase on one exchange and sale on another of the same or equivalent financial instruments in order to benefit from price or currency differentials. Exchange Handbook Glossary
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This is the process of buying securities at a low price in one market and simultaneously selling them in another market at a higher price to make a profit.
In share trading, Investors called risk arbitrageurs attempt to make profits from an expected rise in the price of a takeover target's shares and a drop in the price of the bidding company's shares. These traders simultaneously buy stock in the target company while selling those of the bidding company. They will also invest in the target company if they think, the bidder will be forced to raise his offer price.
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Instruments that have identical characteristics and so are perfect substitutes should trade at the same price. If they do not, a risk-free profit can be generated by simultaneously selling the higher-priced asset and buying the lower priced asset. Arbitrage is the identification and exploitation of such price anomalies. LIFFE
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Buying securities in one country, currency or market, and selling in another to take advantage of price differences. London Stock Exchange Glossary
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Profiting from differences between the price at which trackers are traded and their net asset value. If the tracker price falls below the indicative NAV, market participants can take advantage of this by buying trackers on the secondary market, taking a short position in the index constituents, asking the fund manager to redeem the trackers they purchased by exchanging them for shares, and finally closing the short position at a profit. NYSE Euronext Glossary

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arbitrage ar‧bi‧trage [ˈɑːbtrɑːʒ ǁ ˈɑːr-] noun [uncountable] FINANCE
1. buying something such as a raw material or currency in one place and selling it immediately in another, in order to make a profit from price differences between the two places:

• Analysts attributed the activity to arbitrage buying: traders bought cocoa in New York to sell at a profit in London.

2. buying and selling shares of two companies involved, or that may be involved, in a takeover, in order to make a profit from differences in the share values of the two companies:

• The company incurred losses in risk arbitrage - or takeover-stock speculation - arising from last year's slump in U.S. merger activity.

exˈchange ˌarbitrage
FINANCE a situation in which dealers can make a profit because of the temporary difference in the value between two currencies in relation to a third currency

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   The action of profiting from the correction of price or yield anomalies in markets. Often this will involve taking a position in one market or instrument and an offsetting position in another. As prices or yields move back into line, all positions may be profitably closed out. An arbitrageur is an individual or institution practising arbitrage.

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arbitrage UK US /ˌɑːbɪˈtrɑːʒ/ US  /ˈɑːrbɪtrɑːʒ/ noun [U] STOCK MARKET
the practice of buying something, such as shares or currency, in one place and selling them in another where you can get a higher price at the same time: arbitrage buying/selling »

Traders said a rise in the peso's value made Mexican share prices more expensive compared with shares sold in New York and sparked some arbitrage selling.

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The importance of computers is that arbitrage opportunities can be quickly spotted and capitalized upon.

See also EXCHANGE ARBITRAGE(Cf. ↑exchange arbitrage), MARKET ARBITRAGE(Cf. ↑market arbitrage)

Financial and business terms. 2012.

Look at other dictionaries:

  • ARBITRAGE — Au lieu de porter leurs contestations devant les tribunaux, il arrive fréquemment que les particuliers s’adressent à d’autres personnes en vue d’arbitrer un différend. L’institution de l’arbitrage est de tous les temps. Il est permis de penser… …   Encyclopédie Universelle

  • Arbitrage — (von französisch arbitrage , lat. arbitratus = Gutdünken, freie Wahl, freies Ermessen) bezeichnet das Ausnutzen von Preisunterschieden für gleiche Waren auf verschiedenen Märkten. Infolge der ausgleichenden Wirkung der Arbitrage passen sich die… …   Deutsch Wikipedia

  • arbitrage — ar·bi·trage / är bə ˌträzh/ n [French, literally, arbitration, decision making] 1: the purchase of a security, commodity, or foreign currency in one market for the purpose of immediately selling it at a higher price in another market 2: the… …   Law dictionary

  • arbitrage — ARBITRAGE. subst. m. Jugement d un différent par Arbitre. Mettre quelque chose en arbitrage. Se soumettre à l arbitrage. Subir l arbitrage. S en tenir à l arbitrage …   Dictionnaire de l'Académie Française 1798

  • arbitrage — Arbitrage. s. m. Jugement d un differend par des arbitres. Mettre quelque chose en arbitrage. se sousmettre à l arbitrage. subir l arbitrage. s en tenir à l arbitrage …   Dictionnaire de l'Académie française

  • arbitrage — [är′bə träzh΄] n. [LME < Fr < arbitrer, to judge < L arbitrari: see ARBITRATE; for 2, < Fr arbitrage] 1. a simultaneous purchase and sale in two separate financial markets in order to profit from a price difference existing between… …   English World dictionary

  • Arbitrage — (fr., spr. Arbitrahsch), 1) der Rechtsspruch des von den streitenden Parteien gewählten Schiedsrichters; 2) (Handlsw.), die Berechnung, welche man anstellt, um zu entscheiden, in welcher Münzsorte man am vortheilhaftesten eine Zahlung leiste… …   Pierer's Universal-Lexikon

  • arbitrage — (n.) exercise of the function of an arbitrator, late 15c., from O.Fr. arbitrage arbitration, judgment, from arbitrer to arbitrate, judge, from L.L. arbitrari, from L. arbiter (see ARBITER (Cf. arbiter)) …   Etymology dictionary

  • arbitrage — c est sentence d arbitre, Arbitrium. Arbitrage ou compromis, Arbitrium, Compromissum …   Thresor de la langue françoyse

  • Arbitrage — Ar bi*trage, n. [F., fr. arbiter to give judgment, L. arbitrari.] 1. Judgment by an arbiter; authoritative determination. [Archaic] [1913 Webster] 2. (Com.) A traffic in bills of exchange (see {Arbitration of Exchange}). [1913 Webster] 3.… …   The Collaborative International Dictionary of English

  • Arbitrage — (franz., spr. āsch , v. lat. arbitrium. Entscheidung), im allgemeinen die Erwägung und Entscheidung über die günstigsten unter den an verschiedenen Plätzen sich bietenden Einkaufs und Verkaufsgelegenheiten, findet insbes. Anwendung auf… …   Meyers Großes Konversations-Lexikon