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Arbitrage is a trading strategy that exploits price differences of the same asset in different markets to make risk-free profits. It plays a crucial role in financial markets by promoting efficiency and reducing price disparities.
Common types of arbitrage include spatial arbitrage, where prices vary across locations, and statistical arbitrage, which uses quantitative models to identify mispricings. These strategies help align prices and improve market liquidity.
However, arbitrage opportunities are often short-lived due to rapid market adjustments and technological advancements. Traders must act quickly to capitalize on these inefficiencies before they disappear. |
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