In business economics, finance and sports, arbitrage  is the practice of taking benefit from a cost difference between 2 or more markets: striking a mix of matching deals that take advantage upon the discrepancy, the profit being the differences between the market prices.

When used by academics, an arbitrage is usually a transaction that needs no damaging cash flow at any probabilistic or temporal state as well as a positive cash flow in a minimum of one state; basically, it’s the possibility of a risk-free profit at zero cost.

In principle and in academic use, an arbitrage is risk-free; in common use, such as statistical arbitrage, it might relate to predicted profit, though losses may take place, and in practice, there are always risks in arbitrage, some minor (for example fluctuation of prices decreasing income), some major (for instance devaluation of a currency or derivative).

In academic use, an arbitrage involves benefiting from differences in cost of a single asset or identical cash-flows; in common use, it is also used to refer to differences between very similar assets (relative value or convergence trades), such as merger arbitrage.

Those who take part in arbitrage are known as arbitrageurs such as a bank or brokerage firm. The phrase is mainly ascribed to trading in financial instruments, including bonds, shares, derivatives, commodities and currencies.

Specific sport arbitrage has additionally recently become practical due to the accessibility to internet bookmakers giving widely diverging odds on sporting events setting up situations where it’s possible to place bets that cannot lose.

Even though this involves bookmakers it isn’t gambling as there is absolutely no risk on the initial stake which can not be lost. This is whats called ‘Arbitrage Betting‘ or ‘Matched Betting‘

Arbitrage is not simply the act of buying a product in a single market and selling it in another for a better price at some later time. The transactions must occur simultaneously to stop exposure to market risk, or even the risk that prices may change on one market before both transactions are complete.

In simple terms, this can be generally only possible with securities and financial products that may be traded electronically, and even then, when each leg of your trade is carried out the values available in the market could have moved.

Missing one of the legs of the trade (and subsequently needing to trade it immediately after at a worse price) is known as ‘execution risk’ or more specifically ‘leg risk’.

“True” arbitrage requires that there be no market risk concerned.