Arbitrage

Arbitrage is buying an asset where it is cheap and selling it where it is expensive when the same thing trades at two prices. In theory it is profit without risk.

If a share trades at 100 on one exchange and 100.50 on another, buying on the first and selling on the second nets 0.50. Repeated, this pushes the cheaper price up and the dearer one down until they converge.

So arbitrage is what keeps prices aligned. ETF market prices stay close to net asset value precisely because institutions arbitrage the gap continuously.

Individuals can rarely execute it. Opportunities vanish within seconds, and fees, taxes and currency conversion consume what is left. Treat any offer promising risk-free arbitrage as one that is hiding its risk. In practice it is less risk-free arbitrage than low-risk trading. If the two prices fail to converge and widen instead, the loss can be substantial.