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Arbitrage Meaning: Definition, Examples, and Translations

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arbitrage

[หˆรคrbษชหŒtrรคzh ]

Definition

Context #1 | Noun

financial trading

Arbitrage is the simultaneous buying and selling of an asset in different markets to exploit price differences. Investors engage in arbitrage to profit from the discrepancies in prices that may exist in different locations or formats. This practice ensures that prices do not deviate significantly from their fair market value for long periods. Arbitrage opportunities often arise in financial markets, including stocks, bonds, and currencies.

Synonyms

exploitation, hedging, speculation.

Examples of usage

  • He made a profit through arbitrage in currency exchange.
  • Arbitrage between different stock exchanges can be quite lucrative.
  • She specialized in arbitrage trading in commodity markets.

Translations

To see the translation, please select a language from the options available.

Interesting Facts

Economics

  • Arbitrage is often seen as a cornerstone of efficient markets, as it helps equalize prices across different platforms.
  • As digital trading and technology evolve, arbitrage opportunities arise more quickly, leading to faster trades.
  • It can occur in various markets, including stocks, commodities, and currencies, demonstrating the interconnected nature of global finance.

Pop Culture

  • Films like 'The Big Short' highlight the concept of arbitrage and how it plays a role in financial crises.
  • In the gaming world, some traders use arbitrage in virtual markets to buy items in one place and sell them at a higher price elsewhere.
  • Songs and literature occasionally reference financial maneuvers, emphasizing risk and reward, which is at the heart of arbitrage.

History

  • In the 18th century, traders used rudimentary forms of arbitrage to profit from price differences in different regional markets.
  • The growth of international trade in the 19th century provided significant opportunities for arbitrage as goods traveled to far-off markets.
  • Arbitrage has influenced the development of trading houses and brokers who specialize in navigating price discrepancies.

Technology

  • Algorithmic trading has revolutionized arbitrage, allowing computers to execute trades in milliseconds to capitalize on price differences.
  • Blockchain technology is also opening new frontiers for arbitrage by enabling seamless currency exchanges with minimal fees.
  • Technology has led to the rise of cryptocurrency arbitrage, where traders exploit price differences between various exchanges in real-time.

Origin of 'arbitrage'

Main points about word origin

  • The word comes from the French 'arbitrer', meaning 'to judge' or 'to decide', which reflects the decision-making process in trading.
  • It was first used in financial terms in the 19th century as markets expanded and became more interconnected.
  • The concept has roots in Latin as well, where 'arbitrari' means 'to give judgment or to consider'.

The term 'arbitrage' originates from the French word 'arbitre,' meaning 'judge' or 'referee.' It is derived from the Latin 'arbitrare' which translates to 'to judge' or 'to consider.' The usage of the word in economic and financial contexts dates back to the early 19th century, acquiring its modern connotation as the practice of taking advantage of price differentials in different markets. Its application has grown significantly alongside the development of global financial markets and technology, which has made it easier to execute trades across various exchanges almost instantaneously. Over the years, arbitrage has evolved, encompassing numerous strategies and forms, further solidifying its role within finance and economics.

Word Frequency Rank

Positioned at #20,572, this word is part of extensive vocabulary. It's relatively rare in general usage but may be important in specific fields or formal writing.