Arbitrage, as we know, is the method of buying something in one market and selling it somewhere else, at the same time and gaining from the price differential between the two markets. Now if we trade stocks like this, it is known as Arbitrage in the Stock Market. Stock is a wide term; it can contain shares of ownership in a private company, in a public company, equity shares, or something that can be traded only privately.
Inherently Stock exchanges worldwide function in the basic principle of Arbitrage. An investor always buys a stock so as to sell it at some time at a higher price. There are many variations to this buying and selling, but the basic motive remains the same, to make profit. And the same is the principle behind arbitrage in the stock market.
How is it Conducted
Let's see in an in-depth manner how arbitrage is done in the stock market.
Let us consider the New York Stock Exchange and the NASDAQ for our example here.
Now, says an investor, buy some 50 shares of a company on the New York Stock Exchange for USD 200 each. He has made an investment of 10000 USD.
The seller immediately sells these shares at NASDAQ for 210 USD each.
The price differential is USD 10 per share and a total of 500 USD for the 50 shares he bought is his profit.
Now if he deducts the transaction costs, say 100 USD, he has saved a flat 400 USD in just a matter of a few seconds.
There are various permutations and combinations of how people usually arbitrage in stock markets, like they would go like the example above, or sometimes, they buy and sell different shares on the same exchange, sometimes they would go for exchanges between different countries, and many more. Never confuse the last traded price with the price that you will be offered to trade on. Both are different in reality.
Note: Some stock exchanges prohibit the buying and selling of the same stock, on the same day, on different exchanges. So you have to consider your options before you start to do arbitrage in the stock market.
How to Begin
For beginners, it is always apt, if you can arbitrage via some consulting platform. Even better is if that platform is online, since that would give you more transparency, control, and power over the transactions to be made.
Big investors are using automated software because this has to be quick. As soon as the software detects a arbitrage opportunity in the stock market, it immediately either signals the investor, or just performs the trade, depending upon what it is programmed to do. This is also the reason, that as a beginner you will need both timely guidance and assistance.
One brand that provides flagship services in this domain is executium.com. Executium.com has a special team of experts who are exclusively devoted to handling arbitrage trading in the stock market for their clients. They offer different services which can be customized. Executium can act as your full-fledged arbitrage handler or just a stock arbitrage consultant for that matter. It can also suggest where else to invest, when it comes to online trading and investing like in Stablecoins, Maker tokens, Bitcoins etc. besides stock market. It is always better not to sail all your goods together. Executium.com believes in this and creates a versatile portfolio for clients as per their interest and affordability.