Arbitrage is an investment strategy that involves taking advantage of differences in prices for the same asset in different markets to make a profit. The goal of arbitrage is to buy an asset in one market and sell it simultaneously in another market where the price is higher, pocketing the difference in price as profit. The price difference exploited in arbitrage is usually small and short-lived, and the profit is typically small as well.

Arbitrage exists because of market inefficiencies, and it both exploits those inefficiencies and resolves them. In academic use, an arbitrage involves taking advantage of differences in price of a single asset or identical cash-flows, and it is risk-free. However, in common use, as in statistical arbitrage, it may refer to expected profit, though losses may occur, and in practice, there are always risks in arbitrage, some minor (such as fluctuation of prices decreasing profit margins), some major (such as devaluation of a currency or derivative) .

There are different types of arbitrage, including:

• Pure Arbitrage: This is the purest form of arbitrage, which involves buying an asset on one market while simultaneously selling the same asset in another market to make a risk-free profit.

• Merger Arbitrage: This is a common form of arbitrage used by investors, which involves buying shares in companies prior to an announced or expected merger. The goal is to profit from the difference between the current stock price and the price that the acquiring company has agreed to pay for the target company.

• Retail Arbitrage: This is an example of arbitrage that involves buying an item in one market, such as a physical store, and then selling it in another market, such as online, to turn a quick profit.

Arbitrage trading usually involves making multiple transactions and using large amounts of money to get a meaningful return, making it an expensive approach to investing. While markets rarely operate as efficiently as they might in the ideal world of theory, price differences typically are small, and arbitrage opportunities disappear almost as rapidly as they are discovered.