Home / Ա / Նիւթեր / Տնտեսական / WHAT IS ARBITRAGE?


What is Arbitrage?

Terrific question! Let’s start from the definition. The Economics Glossary defines arbitrage opportunity as “the opportunity to buy an asset at a low price then immediately selling it on a different market for a higher price.” If I can buy an asset for $5, turn around and sell it for $20 and make $15 for my trouble, that is arbitrage. The $15 I gain represents an arbitrage profit.

This kind of arbitrage is actually quite common on eBay. Many eBay sellers will go to flea markets and yard sales looking for collectibles that the seller does not know the true value of and has priced much too low. They will buy the rare collection of Colecovision games from the yard sale for $10 then turn around and sell them on eBay for $100. There are costs to this however. First of all, you don’t find rare Colecovision games just lying around, you have to spend time and energy looking for them. Secondly, you have to spend time learning what is valuable and what is not valuable so you don’t find out later what you thought was worth $100 is only worth $5. Lastly, just because something has sold for $100 in the past does not mean it will sell for $100 again in the future. So given both the financial costs and the opportunity costs involved, we would expect arbitrageurs on this market to make as much money as they would doing other productive activities that require the same set of skills.

Arbitrage of the “One good, Two markets” variety is quite common in the world of sports gambling. Arbitrage on the sports market exists because different betting agencies often post different odds on the outcome of a game.

There are a number of gamblers who try to exploit differences in odds from bookmaker to bookmaker. It’s not quite as profitable as it seems, as the odds do not generally differ as much as they do in this example, plus you have to pay the bookmaker in order to place the bet as that’s how they make their money.

About talar

Check Also


What are game theory and bargaining theory? The best definition of Game Theory contained in …