What is Arbitrage?

The Mystery is Finally Resolved!

By Saif Qureshi, Senior Online Editor

www.artmarketblog.com

Several people, such as my friends, family and loyal readers, have asked me “what the hell does Arbitrage actually mean? Why did the Arbitrage Magazine chose this peculiar word as the name of its national magazine?” Well, for all of you who have wondered, this article is for you!

The word ‘arbitrage’ is actually a financial term, and was chosen because this magazine was initially part of a club known as the National Finance Students Association (NFSA). To this day the NFSA remains as one of our most loyal and beneficial club partners.

Now we know part of the reason for why the word ‘arbitrage’ was chosen. But there are thousands of other financial terms out there, so why this one? To tell you the truth, the word arbitrage was chosen because not only does it sound awesome, it is awesome.

Arbitrage is a word that describes finding an item in one place which has a lower price than another place, and then buying the item at the low price and selling that item quickly at the higher price to earn a profit.  This process can be completed by analyzing markets such as the foreign exchange markets, stock exchanges, or even eBay.

[pullquote]“As a general rule, the most successful man in life is the man who has the best information.” –
Benjamin Disraeli[/pullquote]Arbitrageurs are traders who buy and sell the same or related securities at the same time. An options arbitrage occurs when a trader takes advantage of price differences between two markets, such as the NYSE and CME.  For example, if stock A is selling for $200 and option A of $100 is selling for $50. By buying and exercising that option you have just made $50 instantly! This opportunity arises because markets are not perfect and when new information is released, a security can become unequal in price for a short moment.  While possible, it’s very unlikely you will find this opportunity as other investors and banks with supercomputers are on the lookout as well!

An opportunity for arbitrage also occurs when an index fund, a stock that tracks a group of other stocks, does not equal the value of its combined securities. When the fund is trading at a premium, the arbitrageur can purchase these stocks individually and sell the index fund, resulting in an overall gain. Although this looks easy, like options arbitrage it is very difficult to find these opportunities.

So how does all of that relate to the Arbitrage magazine? Well, the process of arbitrage is about opportunity and this opportunity arises from having information.

This is where the Arbitrage Magazine fulfills its purpose.  Those of you that have memorized the Arbitrage website might recall our vision: “To be a resource for young leaders to examine those business trends of tomorrow that they will help shape today.” Essentially, the Arbitrage helps to provide you with information and resources that will benefit you, not always monetary as is the case with financial arbitrage, but in other ways too.

The Arbitrage Magazine offers several sections such as business, entrepreneurship, student resources, finance & economics, culture, technology, trends, and infographics. These allow young leaders (such as you) to become well versed in world issues, and business in particular. If you don’t know anything about business, this magazine will help you learn business. If you are studying business, this magazine will supplement your learning.

Lastly, to explain why the Arbitrage Magazine exists, I think William Pollard says it best in the following quote: “Information is a source of learning. But unless it is organized, processed, and available to the right people in a format for decision making, it is a burden, not a benefit.”

ARB Team
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