Can you earn money without investing money?? "Yes". Understanding Arbitrage in financial markets!

Arbitrage is the practice of taking advantage of a price difference between two or more markets. Essentially, you can buy low in one market and sell high in another, earning the difference.

Example of Arbitrage:

If you buy a product at a place where there is low demand for it at low price and sell it in a place where there is a high demand for it for high price.

In the context of markets:

For example, let's say Stock A is trading at $100 on the New York Stock Exchange (NYSE) and $102 on the London Stock Exchange (LSE). You can take a short position on Stock A in the LSE (sell it at $102) and use the proceeds to buy Stock A in the NYSE (at $100). After paying back the loan (covering the short position), any remaining profit is yours.

Few important points:

[1] Arbitrage opportunities exits but market participants quickly exploit it until there is no more riskless profits to make. Traders using High Frequency trading methodologies are able to find those opportunities using high computing power and automation.

[2] The concept of No-Arbitrage is used in valuation of bonds and derivatives instruments.

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