Arbitrage is a financial strategy based on exploiting price differences of the same asset across different markets or forms to generate profit. Arbitrage involves simultaneously buying and selling an asset or related assets to take advantage of price discrepancies.

Examples of Arbitrage:

• Intermarket Arbitrage: Utilizing price differences of the same asset in different markets. For example, if a stock is trading at different prices on two exchanges, a trader can buy the stock on the exchange where it is cheaper and sell it on the exchange where it is more expensive.

• Intrabroker Arbitrage: Utilizing price discrepancies from various liquidity providers within a single broker.

• Currency Arbitrage: Trading currencies in different currency markets where there are discrepancies in exchange rates.

• Futures Arbitrage: Exploiting the price difference between a futures contract and its underlying asset to generate profit.

Arbitrage opportunities arise from temporary price mismatches and typically disappear quickly as arbitrage actions themselves help align prices. Arbitrage is crucial for maintaining market efficiency as it helps equalize prices across different markets.