In economics, investment and sports, arbitrage is the practice of taking advantage of a cost difference between several markets: striking a mix of matching deals which  take advantage upon the asymmetry, the gain being the differences relating to the market prices.

When employed by academics, an arbitrage is usually a transaction that concerns no bad cashflow at any probabilistic or temporal state as well as a positive cashflow in one or more state; basically, it is the probability of a risk-free profit at zero cost. In effect free money from bets where absolutely no risk existed.
In banking markets this is called ‘Arbitrage’. In betting markets it is called Matched Betting.

In principle as well as in academic use, an arbitrage is risk-free; in common use, for example statistical arbitrage, it might reference projected profit, though losses may happen, and in practice, there are always risks in arbitrage, some minor (such as fluctuation of prices decreasing income), some major (which include devaluation of a currency or derivative).

In academic use, an arbitrage involves taking advantage of differences in cost of a single asset or identical cash-flows; in common use, it is also used to make reference to differences between equivalent assets (relative value or convergence trades), such as merger arbitrage.

Individuals who engage in arbitrage are known as arbitrageurs possibly a bank or brokerage firm. The word is principally given to trading in financial instruments, for example bonds, stocks and shares, derivatives, commodities and currencies.

Sports arbitrage has also recently become achievable mainly because of the availability of web-based bookmakers offering widely diverging odds on sports setting up situations where it is easy to place bets that cannot lose.

Despite the fact that this involves bookmakers it is far from gambling as there’s no risk to the initial stake which cannot be lost.

Arbitrage isn’t simply the act of buying a physical product within a market and selling it in another for a higher price at some later time. The trades must happen simultaneously in order to avoid exposure to market risk, or even the risk that prices may change on one market before both trades are finished.

In simple terms, this can be generally only possible with securities and financial products which might be traded electronically, and even then, when each leg of your trade is performed the prices on the market might have moved.

Missing one of the legs from the trade (and subsequently being forced to trade it soon after at a worse price) is called ‘execution risk’ or more specifically ‘leg risk’.

“True” arbitrage requires that there be no market risk involved.

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