|Arbitrage refers to the opportunity of
taking advantage between the price difference between two
different markets for that same stock or commodity.
In simple terms one can understand by an example of a commodity
selling in one market at price x and
the same commodity selling in another market at price x
+ y. Now this y, is the
difference between the two markets is the arbitrage available to
the trader. The trade is carried simultaneously at both the
markets so theoretically there is no risk. (This arbitrage should
not be confused with the word arbitration, as arbitration is
referred to solving of dispute between two or more parties. )
The person who conducts and takes advantage of arbitrage in
stocks, commodities, interest rate bonds, derivative products,
forex is know as an arbitrageur.
Arbitrage opportunities exists between different markets
because there are different kind of players in the market, some
might be speculators, others jobbers, some market-markets, and
some might be arbitrageurs.
In India there are a good amount of Arbitrage opportunities
between NCDEX, MCX in commodities.
In the Indian Stock Market, there are a good amount of
Arbitrage opportunities between NSE, Cash and Future market and
BSE, Cash and Future market.