#ArbitrageTradingStrategy ### ⚡ Arbitrage Strategy: Intelligently Exploiting Price Differences
Arbitrage is a trading strategy that relies on **buying an asset at a low price in one market and selling it at a higher price in another market** simultaneously, to achieve an instant profit from temporary price differences. It is one of the closest strategies to "zero risk" when executed accurately, but it requires high speed and advanced techniques due to the rarity of opportunities and their short lifespan.
#### 🔍 Unconventional Types of Opportunity Exploitation:
1. **Merger Arbitrage**: Buying shares of a target company before the completion of its merger with another company, and selling after the announcement of the deal at a higher price.
2. **Convertible Arbitrage**: Exploiting the differences between the price of a convertible bond and the price of the underlying stock, through opposing positions (buying the bond + short selling its shares).
3. **Statistical Arbitrage**: Using mathematical models to identify price discrepancies between historically correlated assets, such as stock indices versus their futures contracts.
#### ⚠️ Key Challenges:
- **Intense Competition**: Major institutions and hedge funds dominate opportunities using ultra-fast algorithms.
- **Transaction Costs**: Commissions and taxes can wipe out profits, especially with small margins.
- **Execution Risks**: Any technical delay can result in losing the opportunity due to the rapid adjustments of markets to their discrepancies.
#### 💡 Practical Example:
If Company "X" traded at **15,000 Rupees** on the Bombay Stock Exchange (BSE) and **15,020 Rupees** on the National Stock Exchange (NSE), it can be bought from NSE and sold on BSE for a profit of 20 Rupees per share after deducting costs.