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What is arbitration in stock market?

Updated: 12/24/2022
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Ashokreddystock

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12y ago

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Arbitration or arbitrage? There's a huge difference.

Arbitration is a kind of negotiation. Arbitrage is taking advantage of a difference in price between two markets.

So I'm an arbitrageur and work with fresh fruit. I notice the wholesale price of Bing Cherries in Moses Lake, Washington, is $2 per pound. I also notice the wholesale price of those cherries in Missoula, Montana, is $3 per pound. To arbitrage these cherries, I buy 42,000 pounds of them in Moses Lake then simultaneously sell them in Missoula, hire a truck driver to take them to Moses Lake (it's only 300 miles) and pocket the profit.

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