What is arbitration?

Arbitration is an activity of using imbalance between two or more markets. Foreign exchangers of money on this principle run their entire businesses. They will find tourists who need the comfort of quick cash exchange. Tourists exchange cash for less than the market rate, and then the money exchanger converts these foreign funds to the local currency at a higher rate. The difference between these two rates is a range or profit.

There are many other cases where one can engage in practice. In some cases, one market does not know or has access to the other market. Alternatively, the arbitrators can use different liquidity among markets. The presence of referees usually causes prices on different markets closer: prices on the more expensive market will tend to fall and opposition will follow the cheaper market. The efficiency of the market concerns the speed at which inconsistent prices are closer.

Connection to arbitration may be lucrative,But it does not come without risk. Perhaps the greatest risk is the potential of rapid fluctuations in market prices. For example, spreading between two markets can fluctuate over the time required for transactions themselves. In cases where prices are rapidly fluctuating, future arbitrators can actually lose money.