#ArbitrageTradingStrategy Arbitrage in trading is a strategy that seeks to obtain profits by taking advantage of price differences of the same asset in different markets, or between different markets, by buying in the cheaper market and selling in the more expensive one simultaneously.

How does it work?

1. Identification of the price difference:

An asset that is quoted at different prices in two or more markets is sought.

2. Simultaneous operation:

The asset is bought in the market where the price is lower and, at the same time, sold in the market where the price is higher.

3. Obtaining the profit:

The difference between the purchase price and the selling price, once commissions are deducted, is the profit from arbitrage.

Examples of arbitrage:

Arbitrage between markets:

Buying shares of a company on the New York Stock Exchange and selling them on the London Stock Exchange if the price is higher in London.

Arbitrage between instruments:

Buying a convertible bond and, at the same time, selling the shares into which it can be converted, if there is a price difference that allows for profit.

Advantages of arbitrage:

Low risk:

In theory, arbitrage is a low-risk strategy since it seeks to take advantage of already existing price differences, not to predict future market movements.

Profit potential:

It allows for profits without having to bet on the direction of the market.

Disadvantages of arbitrage:

Difficulty in finding opportunities:

Price differences are often small and fleeting, requiring speed and advanced technology to detect and capitalize on them.

Transaction costs:

Commissions and operational expenses can reduce or even eliminate profits if not taken into account.

Execution risk:

Sometimes, the price difference may disappear before the operation can be completed, resulting in losses.