Five Arbitrage Techniques Every Investor Needs to Know
When one hears the term arbitrage it might bring to mind the name of a fancy perfume or perhaps the name of a famous museum (that's the Hermitage in St. Petersburg, Russia). But arbitrage is a whole field of profitable investing that for too many people is quite clandestine. In this installment of the Finance Professor, I will open your eyes to what arbitrage is and explain how you might be able to profit and avoid losses via five core arbitrage techniques.
To start off, we need a working definition of arbitrage:
Arbitrage is the simultaneous purchase and sale of securities, commodities or assets in order to profit from price discrepancies, with as little risk as possible.
Please note that:1. An arbitrage requires more than one transaction or "leg." 2. The price discrepancy does not necessarily ensure a profit. 3. The risk may be quantified as being low, but it does exist and can lead to significant losses. Now let's look at some very popular forms of arbitrage. 1. Risk Arbitrage The theory: When one company seeks to
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