Arbitrage describes the practice of buying and selling an asset in order to profit from a difference in the asset's price between markets. It is a trade that profits by exploiting the price differences of identical or similar financial instruments in different markets.
Arbitrage trading occurs when a security is purchased in one market and simultaneously sold in another market at a higher price. Most jurisdictions allow traders to conduct arbitrage as it provides a mechanism to ensure prices do not deviate substantially from an asset’s fair value for long periods of time. Advancements in technology have made it hard for traders to benefit from pricing errors in the market.