Throughout the history of free markets, traders have made money through arbitrage, a tactic that takes advantage of price differences to make risk-free profits. Investors such as Warren Buffett and big banks have seen success using arbitrage in everything from financial instruments and currencies to mergers and commodities. Salman Khan of the Khan Academy describes how arbitrage works in a simple example.
From this video, you’ll understand:
- The rationale behind arbitrage
- How arbitrage affects supply and demand
- The effect of arbitrage on price