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Arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, a risk-free profit.

A person who engages in arbitrage is called an arbitrageur such as a bank or brokerage firm. The term is mainly applied to trading in financial instruments, such as bonds, stocks, derivatives, commodities and currencies. If the market prices do not allow for profitable arbitrage, the prices are said to constitute an arbitrage equilibrium or arbitrage-free market.

Arbitrage is possible when one of three conditions is met:
  • The same asset does not trade at the same price on all markets ("the law of one price").
  • Two assets with identical cash flows do not trade at the same price.
  • An asset with a known price in the future does not today trade at its future price discounted at the risk-free interest rate (or, the asset does not have negligible costs of storage; as such, for example, this condition holds for grain but not for securities).

Arbitrage is not simply the act of buying a product in one market and selling it in another for a higher price at some later time. The transactions must occur simultaneously to avoid exposure to market risk, or the risk that prices may change on one market before both transactions are complete. In practical terms, this is generally only possible with securities and financial products which can be traded electronically, and even then, when each leg of the trade is executed the prices in the market may have moved.

“Arbitrage as a trading strategy that requires the investment of no capital, cannot lose money, and has a positive probability of making money.”

Few related projects: Automatic stock trading software, Currency trading software, Online trading software, Stock trading software, Trading system software, etc.

Currency Trading
To Exchange one currency for another currency is termed as “Currency Trading”
There are two reasons the relative values of a currency fluctuate:
Automatic Trading System
The First is because of a Real Market; as outside investors or visitors wish to
buy things within a country, they are forced to convert their domestic currency into the currency of the country which they are buying. Similarly, as money leaves the country, people must sell their currency for the foreign currency they will need to spend or invest abroad.
Automatic Trading System
The Second force for currency fluctuation is speculation. When investors
think a given currency will act strongly or weekly, they will buy or sell accordingly. This speculation can have drastic consequences on a national currency, and consequently on a country’s economy.
Currency Trading has many very real benefits over equity trading like the stock exchange. The spreads for currency trading are extremely low, making the cost to a trader very low as well. The volatility of their currency market is extremely high, which means that a trader can generate enormous return on a given exchange. The ratio of volatility to spread is approximately 500:1 for the currency trading market, as compared to 100:1 for even the most ideal of stocks.
Until recently, the currency trading market was very closed to “Small Investors”. Banking conglomerates and large multinationals were the main movers of this market place. In the past few years, however, new technologies have opened the doors to investors of all stripes. It is difficult to miss the enormous benefits of this “New” market for the individual investors. Higher returns with lower risk given the some amount of market knowledge have a very small downside.
Commodity Trading
Is an investing strategy that involves the buying and selling of goods that are classified as Commodities
There are many similarities between commodity trading and the trading activity involved with Stocks. One key difference has to do with the difference between what is traded.
A Commodity is normally defined as something that is considered to be value, has a quality that is more or less consistent, and is produced in large amounts by a number of different producers. When people choose to invest in commodities, they normally think in terms of items that are resources that may be purchased for a wide range of uses.
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