2006-07-24 08:16:34 · 2 answers · asked by Larry Wallace 1 in Business & Finance ➔ Investing
Arbitrage involves buying and asset at one price and immediately selling it at a higher price elsewhere.
An example; IBM stock trades on more than one exchange. Not only does it trade on the NYSE, but it also trades on the AMEX and the regional exchanges I believe.
Let's say on the NYSE, the price of IBM is $50.00, but on the AMEX, the price is $49.75. In arbitrage, you buy IBM on the AMEX and immediately sell it on the NYSE at $50.00, locking in a guaranteed 25 cents per share profit. Generally, arbitrage is for the big boys as in order to make money above the costs involved, you need to buy large numbers of share. And because the arb may exist for only a few moments, you need computers constantly scanning the markets and be able to make the trades in a matter of seconds. Only the big boys have that kind of money and computing resources.
2006-07-24 12:29:18 · answer #1 · answered by 4XTrader 5 · 2⤊ 0⤋
Deterministic arbitrage is purchase of an asset in one (cheap) market for immediate resale in another (expensive) market.
2006-07-24 08:50:09 · answer #2 · answered by NC 7 · 0⤊ 0⤋