ARBITRAGE

A situation where it becomes possible to make a profit without taking any risk or making any investment.

However, arbitrage opportunities are rare in efficient markets and there a couple strong reasons for that to happen. Whenever an arbitrage opportunity appears in financial markets, investors quickly exploit them because they represent situations where money can be made without taking any risk. Not only that, but every time investors spot these kind of opportunities, they rush to trade in order to exploit them, leading to an almost instant reaction on prices which eventually ends up mitigating the arbitrage opportunity.

Academically in finance, an arbitrage is also often called as a risk-free opportunity.

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