ShmoopTube
Where Monty Python meets your 10th grade teacher.
Search Thousands of Shmoop Videos
Bonds Videos 389 videos
What is Collateralized Mortgage Obligation (CMO)? A CMO is a mortgage bond that consists of a large number of different individual mortgages bundle...
What are kickbacks? Well, they're things we don't get for working at Shmoop, that's for sure. Hit play to find out more.
What are At the Money, In the Money, Deep in the Money, and Out of the Money? At the money happens when a stock is trading at an option’s strike...
Finance: What is Arbitrage? 22228 Views
Share It!
Description:
What is Arbitrage? Arbitrage is a trading strategy used to make risk-free money. The investor buys a security in one market and sells it in another market at the same exact time that a change in price or pricing error occurs.
- Social Studies / Finance
- Finance / Financial Responsibility
- College and Career / Personal Finance
- Life Skills / Personal Finance
- Finance / Finance Definitions
- Life Skills / Finance Definitions
- Finance / Personal Finance
- Courses / Finance Concepts
- Subjects / Finance and Economics
- Finance and Economics / Terms and Concepts
- Terms and Concepts / Bonds
- Terms and Concepts / Careers
- Terms and Concepts / Econ
- Terms and Concepts / Financial Theory
- Terms and Concepts / Investing
- Terms and Concepts / Real Estate
- Terms and Concepts / Stocks
- Terms and Concepts / Tax
- Terms and Concepts / Trading
- Terms and Concepts / Wealth
Transcript
- 00:00
finance a la shmoop what is arbitrage? not yourbritage or mybitrage but
- 00:08
arbitrage what it's been a while since we conjugated anything around here oh ok [Man talking about arbitrage]
- 00:14
so moving on arbitrage is a riskless trade you make guaranteed profits just
- 00:20
for being on top of things or in the right place at the right time or you're
- 00:25
there when opportunity comes a-knockin think about the stock exchanges in the [Men working in stock exchange]
Full Transcript
- 00:29
pre-internet era around the world communication well it was relatively
- 00:34
slow and expensive back then especially when it came to sharing data one [Man talking into olden microphone]
- 00:38
relatively easy arbitrage or riskless trade opportunity that came about was
- 00:44
when stocks traded at one price on the various european exchanges versus the
- 00:50
prices it traded at on the US exchanges like shares of IBM might have been [Share price graph of IBM]
- 00:55
offered for sale at $165 32 cents on the london stock exchange even net of
- 01:01
currency conversion prices remember the Brits were on the pound system but in
- 01:05
the US investors were paying $165 47 cents a share
- 01:10
so an easy 15 cents a share was made all day long in buying the shares of IBM in
- 01:16
London and then just selling him back here in New York well both sides of the
- 01:20
trade were made at the same time it was riskless it was arbitrage and arbitrage
- 01:26
became a whole industry for a while until the capital markets went to work
- 01:30
and spreads tightened as communication got more liquid and people sprayed a [Spreads word becomes narrower]
- 01:35
bunch of wd-40 on information passing around the world and then that 15 cent [15 cents transfers from US to England]
- 01:40
spread from London to New York became more like a penny or a tenth of a penny
- 01:44
or at least close enough of a spread so that it was no longer worth bothering to
- 01:49
try and make a buck or a billion whatever those arbitrageours made in
- 01:53
those days
Related Videos
GED Social Studies 1.1 Civics and Government
What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...
What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...
How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...