Arbitrage is a trading strategy that aims to take advantage of price differences in different markets by buying low and selling high. It is a way to profit from inefficiencies in the market.
Here are the steps to make an arbitrage trade:
1. Identify price differences: Look for price differences between different markets, exchanges, or assets. For example, you might find that the price of a stock is higher on one exchange than on another.
2. Calculate the profit potential: Determine how much profit you can make from the price difference by subtracting the purchase price from the sale price.
3. Make the trade: Buy the security on the market where the price is lower and sell it on the market where the price is higher.
4. Close the trade: Once the trade is complete, close the position by buying the security back on the market where you sold it and selling it on the market where you bought it.
It is important to keep in mind that arbitrage opportunities may not always be available and that there may be risks involved, such as the risk of price movements or the risk of not being able to execute the trade. It is important to carefully consider the risks and benefits of arbitrage before deciding to use it in your trading activities.
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