Negative Arbitrage

Negative arbitrage is a situation in which an investor can make a profit without taking on any risk. This is possible when there are two or more markets for the same asset, and the prices in these markets are not in equilibrium.

For example, suppose that an investor can buy a stock in one market for $100 and sell it in another market for $101. The investor would make a profit of $1 without taking on any risk. This is an example of negative arbitrage.

Negative arbitrage is possible because of market inefficiencies. In a perfect market, the prices of all assets would be the same in all markets. However, in the real world, there are often differences in prices between different markets. These differences can be exploited by investors to make a profit.

Negative arbitrage is not always easy to find. It requires investors to be aware of market inefficiencies and to be able to exploit them. However, when it can be found, negative arbitrage can be a very profitable strategy.

Here are some additional examples of negative arbitrage:

* An investor can buy a stock on margin and sell it short. If the stock price falls, the investor will make a profit.
* An investor can buy a call option and sell a put option on the same underlying asset. If the price of the asset rises, the investor will make a profit.
* An investor can buy a futures contract and sell a forward contract on the same underlying asset. If the price of the asset changes, the investor will make a profit.

Negative arbitrage is a risky strategy. It is possible to lose money by attempting to exploit market inefficiencies. However, when it can be done successfully, negative arbitrage can be a very profitable strategy.