Arbitrage
Arbitrage is profit from buying the same thing cheaply in one market and selling it for more in another. The gain comes from capturing the price gap, not accepting ordinary market risk.
The exact same thing can carry two prices at once simply because it is offered in two different places. That contradiction—a cheap version here and an expensive version there—is the opening an arbitrageur trades.
E1Turning two prices into one trade
Arbitrage joins two markets that are pricing an equivalent asset differently: buy in the cheaper market and sell in the dearer one. The trades must be executable together; otherwise the price can move before the second leg closes, turning a gap into a bet. Successful arbitrage pushes supply toward the expensive market and demand toward the cheap one, helping enforce the law-of-one-price and pull prices toward market-equilibrium.
E1A visible spread may be imaginary profit
Two quoted prices are not enough. The goods may differ, the trades may not synchronize, or transaction-costs may consume the spread. Persistent gaps often reveal market-frictions rather than free money; some can be captured only at economies-of-scale unavailable to a small trader. That is why understanding arbitrage begins with proving that the apparent opportunity is actually executable.
Write down both legs
When you spot a price gap, specify the exact item, where you will buy it, where you will sell it, and whether both trades can happen at the quoted prices. Then subtract every cost of financing, moving, converting, and selling it. If equivalence, synchronization, or net profit remains uncertain, call it speculation—not arbitrage.
Episodes that teach this
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Be Rich or Go to Jail - Arbitrage Explained Simply with Examples - FutureIQ
· explained at 2:46
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"When the exact same thing is available in two different places for two different prices, that's called arbitrage."