Arbitrage

Arbitrage is the practice of simultaneously buying and selling the same asset across different markets to profit from price discrepancies. It relies on the fact that the same asset can be priced differently in different exchanges or regions at the same time. Arbitrage opportunities are typically short-lived, as markets tend to correct themselves quickly.

A trader notices that Gold is priced at $1,950 on one exchange and $1,953 on another. By buying on the cheaper exchange and simultaneously selling on the more expensive one, the trader locks in a $3 per unit profit with minimal risk. In a prop trading context, arbitrage strategies must be executed with precision and speed, as the window of opportunity can close within seconds. Traders using prop firm capital must also be mindful of commission costs and slippage, which can erode the profitability of arbitrage trades if not accounted for carefully.