CHAPTER13

Arbitrage

In This Chapter

  • The definition of arbitrage
  • Theoretical arbitrage and practical arbitrage
  • How to use arbitrage strategies
  • Waiting for the high-frequency folks

By definition, arbitrage is a riskless profit. In theory, arbitrage is not possible. It’s a useful way to think about how markets work in a classroom, but the real world is very different. When some people talk about arbitrage, they are using the theoretical definition.

In the real world, the word arbitrage is used to mean a trade that’s similar to theoretical arbitrage, but that has a little bit of risk. This is not the strictest definition of the word. You’ll hear ...

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