In theory, arbitrage is a riskless activity because traders are simply buying and selling the same amount of the same asset at the same time. For this reason, arbitrage is often referred to as "riskless profit." Arbitrageurs also try to exploit price differences created by mergers.

What is a riskless arbitrage?

Riskless arbitrage. The simultaneous purchase and sale of the same asset to yield a profit.

How does arbitrage earn riskless profit?

Understanding Arbitrage

Arbitrage can be used whenever any stock, commodity, or currency may be purchased in one market at a given price and simultaneously sold in another market at a higher price. The situation creates an opportunity for a risk-free profit for the trader.