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The simultaneous purchase and sale of the same or equivalent asset in different markets to profit from price discrepancies.
Arbitrage exploits temporary mispricings to earn risk-free or near-risk-free profit. For example, if a stock trades at $50 on the NYSE and $50.05 on the London Stock Exchange, an arbitrageur could buy on the NYSE and sell in London for a $0.05 per share profit. In practice, true arbitrage opportunities are rare and fleeting because they are quickly eliminated by market participants. Statistical arbitrage and merger arbitrage are related but carry meaningful risk.