Market arbitrage

Market arbitrage, often called intra-market arbitrage, is the simplest of arbitrage strategies. It is also purely true arbitrage: the making of a riskless profit from a market inefficiency.

The opportunity for market arbitrage occurs when the same security trades in different markets. If it ever trades at a different price in the two markets, then an arbitrageur can buy in the market where it is more expensive while simultaneously selling in the market where it is cheaper.

This is true arbitrage: it is riskless (of course counterparty risk exists, trades may fail to be executed, etc.) and it requires no capital.

Opportunities for market arbitrage tend to be fairly small and to disappear quickly.

There are many securities that do trade in different markets. Examples include: standardised contracts such as futures and traded options often exist in identical form in different markets and shares that are either dual listed companies or traded on other markets using GDRs. Intra-market arbitrage is also possible with commodities.

Although it is simpler, market arbitrage has a conceptual similarity with arbitrage strategies that exploit differences between the price of securities and hedges. Those, in effect, use the price difference between a security and a synthetic security that replicates it, buying one and selling the other.