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ar⋅bi⋅trage
[ahr-bi-trahzh for 1, 3; ahr-bi-trij for 2]
noun, verb, -traged, -trag⋅ing.| 1. | Finance. the simultaneous purchase and sale of the same securities, commodities, or foreign exchange in different markets to profit from unequal prices. |
| 2. | Archaic. arbitration. |
| 3. | Finance. to engage in arbitrage. |
Based on the Random House Dictionary, © Random House, Inc. 2009.
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Copyright © 2009 by Houghton Mifflin Company.
Published by Houghton Mifflin Company. All rights reserved.
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| Main Entry: | arbitrage1 |
| Part of Speech: | n |
| Definition: | the process of arbitration; decision by arbitration |
| Etymology: | Latin arbitrari 'to give judgment' |
| Main Entry: | arbitrage2 |
| Part of Speech: | n |
| Definition: | authoritative decision or exercise of judgment |
| Etymology: | Latin arbitrari 'to give judgment' |
| Main Entry: | arbitrage |
| Part of Speech: | v |
| Definition: | to engage in arbitrage |
| Etymology: | Latin arbitrari 'to give judgment' |
| Usage: | intransitive |
Arbitrage
Ar"bi*trage\, n. [F., fr. arbiter to give judgment, L. arbitrari.]1. Judgment by an arbiter; authoritative determination. [Archaic] 2. (Com) A traffic in bills of exchange (see Arbitration of Exchange); also, a traffic in stocks which bear differing values at the same time in different markets.Cite This Source
Arbitrage
The simultaneous purchase and selling of an asset in order to profit from a differential in the price. This usually takes place on different exchanges or marketplaces. Also known as a "riskless profit".
Investopedia Commentary
Here's an example of arbitrage: Say a domestic stock trades also on a foreign exchange in another country, where it hasn't adjusted for the constantly changing exchange rate. A trader purchases the stock where it is undervalued and short sells the stock where it is overvalued, thus profiting from the difference. Arbitrage is recommended for experienced investors only.
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See also: Arbitrage Trading Program (ATP), EMH, Exchange Rate, Futures Spread, Market Arbitrage, Risk
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arbitrage
- The simultaneous purchase and sale of substantially identical assets in order to profit from a price difference between the two assets. As a hypothetical example, if General Electric common stock trades at $45 on the New York Stock Exchange and at $44.50 on the Philadelphia Stock Exchange, an investor could guarantee a profit by purchasing the stock on the Philadelphia Stock Exchange and simultaneously selling the same amount of stock on the NYSE. Of course, the price difference must be sufficiently great to offset commissions. Arbitrage may be employed by using various security combinations including stock and options and convertibles and stock. See also basis trading, risk arbitrage.
Copyright © 2003. Published by Houghton Mifflin.
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Main Entry: ar·bi·trage
Pronunciation: 'är-b&-"träzh
Function: noun
Etymology: French, literally, arbitration, decision-making
1 : the purchase of a security, commodity, or foreign currency in one market for the purpose of immediately selling it at a higher price in another market
2 : the purchase of the stock of a takeover target esp. for the purpose of selling it to the raider for a profit
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bɪˌtrɑʒ