Arbitrageur

An arbitrageur is a person or firm that engages in arbitrage, which is the simultaneous purchase and sale of an asset in different markets or in different forms in order to profit from the difference in prices. Arbitrageurs are often seen as market makers, as they help to ensure that prices are fair and efficient by providing liquidity to the market.

There are two main types of arbitrage:

• Triangular arbitrage occurs when an asset is simultaneously bought in one market and sold in another at a higher price. For example, an arbitrageur might buy euros in the United States and sell them in Europe, where the euro is worth more.
• Statistical arbitrage occurs when an arbitrageur takes advantage of small differences in the prices of two or more related assets. For example, an arbitrageur might buy a stock that is expected to rise in value and sell a put option on the same stock. If the stock does rise in value, the arbitrageur will make a profit on the stock and will also be able to sell the put option for a profit.

Arbitrageurs can be very profitable, but they also face a number of risks, including the risk that the prices of the assets they are trading will move against them. Additionally, arbitrageurs may need to have a large amount of capital in order to be able to take advantage of arbitrage opportunities.

Despite the risks, arbitrage is an important part of the financial markets. Arbitrageurs help to ensure that prices are fair and efficient, and they also help to reduce volatility.