In economics, investment and sports, arbitrage  is the concept of taking advantage of a cost difference between 2 or more markets: striking the variety of matching deals that take advantage upon the imbalance, the profit being the differences relating to the market prices.

When used by academics, an arbitrage can be described as transaction that concerns no damaging cash flow at any probabilistic or temporal state as well as a positive cash flow in at least one state; basically, it’s the possibility of a risk-free profit at zero cost.

In principle and in academic use, an arbitrage is risk-free; in common use, as in statistical arbitrage, it may well relate to predicted profit, though losses may occur, and in practice, there are always risks in arbitrage, some minor (along the lines of change of prices decreasing income), some major (for instance devaluation of the currency or derivative).

In academic use, an arbitrage involves taking advantage of differences in cost of a single asset or identical cash-flows; in common use, it is also used to focus on differences between similar assets (relative value or convergence trades), such as merger arbitrage.

Those who practice arbitrage are called arbitrageurs say for example a bank or brokerage firm. The phrase is primarily given to trading in financial instruments, including bonds, stocks, derivatives, goods and currencies.

Specific sport arbitrage has additionally recently become achievable due to the use of world-wide-web bookmakers giving widely diverging odds on sports creating situations where it is possible to place bets that cannot lose.

Even though this involves bookmakers it is far from gambling as there is absolutely no risk to the initial stake which can not be lost. This is whats called ‘Arbitrage Betting‘ or ‘Matched Betting‘

Arbitrage is not simply the act of buying a physical product within a market and selling it in another for a better price at some later time. The trades must take place simultaneously in order to avoid exposure to market risk, or perhaps the risk that prices may change on one market before both deals are completed.

In practical terms, this can be generally only possible with securities and financial products which may be traded electronically, and even then, when each leg of the trade is carried out the values available in the market might have moved.

Missing one of the legs from the trade (and subsequently having to trade it soon after at a worse price) is called ‘execution risk’ or more specifically ‘leg risk’.

“True” arbitrage necessitates that there be no market risk included.