Definition
Arbitrage is a way of making a profit by buying an asset at a lower price in one market and selling it at a higher price in another market. Traders take advantage of this price difference to earn a small profit.
Example
If a stock is trading at 100 on one exchange and 102 on another exchange, a trader can buy the stock at 100 and sell it at 102. The difference of 2 is the profit from arbitrage.
Caution
Although arbitrage is often considered a low-risk strategy, opportunities usually last for a very short time. Transaction costs, taxes, and execution delays can reduce or even eliminate profits, so traders need to act quickly and carefully.