What is arbitration?

Stock Arbitration includes the use of differences in prices of the same shares. The most common use of arbitration is to buy stocks in one market and sell on the other. Arbitration theoretically offers a guaranteed profit, but in fact delay in transactions introduces an element of risk. It is also said that the use of futures contracts or stock options can be classified as a stock arbitration. One example would be if the company's shares had a market price of $ 10 on the New York Stock Exchange and $ 15 at the Chicago Mercantile Exchange. Theoretically, someone would buy shares on the New York market and are immediately sold on the Chicago market would reach 50% profit. One is that profit can be exported by transaction fees. Another is that even electronic trading may be delayed between purchasing on one market for sale on another, during which the price can change and erase benefits. The market is very busy, it is likely that the price is changing faster than usual, and thus exposed to a greater risk of unfavorable change. If the market is very ticIt may take some time to find the buyer for stocks to which the price could be reduced.

Chamber execution requires even more attention than usual, because two markets must be monitored. This problem deteriorates the fact that often the best opportunity for arbitration comes with markets in different countries where facts affecting stock price may differ wider. An attempt to carry out cross -border arbitration means paying special attention to exchange courses, ensuring that the agreement is profitable and time zone, make sure both markets will remain long enough to complete the agreement.

Depending on the interpretation of the phrase, arbitration can be considered as an arbitration of further stock activities. A person holding a futures contract or an option contract can be able to buy shares at a previously agreed price and sell it immediately at a higher price. Similarly, an employee of a company that offers stock options asThe advantage can be able to buy shares from the company and sell on the market at a higher price. Not everyone would include this as an arbitration, because some definitions insist that it only applies to two separate markets.