Exploiting pricing or interest rate differences for an asset traded on different exchanges

A distinction is made between two different sorts of arbitrage: price difference arbitrage and cash-futures arbitrage. In the case of price difference arbitrage market players buy securities cheaply on one exchange and sell them simultaneously on another exchange at a higher price. This increases demand and hence the price of the security concerned on the lower-priced market. Conversely, the price on the higher-priced market falls as a result of the increase in supply. As a result, the prices on the different exchanges converge.

Cash-futures arbitrage entails exploiting the difference in the prices of a financial instrument on the cash and the futures markets at the same time. For example, arbitragers buy a stock option that is set to expire on the same day, expecting to sell it again immediately on the cash market at a price above the exercise price.

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