Law of one price


The law of one price refers to situations where equivalent investment opportunities are available at the same time in distinct competitive markets, and where they are traded exactly at the same price in both markets.

Naturally, all sellers will always attempt to get the highest possible price available on the market, while in the other side, all buyers will go for the precise opposite. The equilibrium in the “law of one price” is obtained when these two prices converge. This is expected to happen instantly in any truly efficient market or otherwise arbitrage opportunities may easily arise.

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The law of one price and the online arbitrage

The law of one price explained in pictures

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