In economics, investment and sports, arbitrage is the method of taking advantage of a price difference between two or more markets: striking a variety of matching deals which  take advantage upon the difference, the profit being the differences relating to the market prices.

When employed by academics, an arbitrage is often a transaction that needs no negative cashflow at any probabilistic or temporal state including a positive cashflow in at least one state; in simple terms, it is the probability of a risk-free gain at zero cost. In effect free money from trades where zero risk existed.
In banking markets this is called ‘Arbitrage’. In gambling markets it is called Matched Betting.

In principle and within academic use, an arbitrage is risk-free; in common use, for example statistical arbitrage, it might mean predicted profit, though losses may arise, and in practice, there are always risks in arbitrage, some minor (for instance fluctuation of prices decreasing profit margins), some major (for example devaluation of a currency or derivative).

In academic use, an arbitrage involves benefiting from variations in cost of a single asset or identical cash-flows; in common use, it is usually employed to refer to differences between very similar assets (relative value or convergence trades), as in merger arbitrage.

Individuals that participate in arbitrage are known as arbitrageurs perhaps a bank or brokerage firm. The phrase is especially related to trading in financial instruments, including bonds, stocks, derivatives, commodities and currencies.

Sports arbitrage has additionally recently become achievable mainly because of the accessibility to world-wide-web bookmakers offering up widely diverging odds on sporting events setting up situations where it is possible to place bets that cannot lose.

Even though this involves bookmakers it’s not at all gambling as there is absolutely no risk on the initial stake which cannot be lost.

Arbitrage is not simply the act of buying a product in a single market and selling it in another for a higher price at some later time. The deals must transpire simultaneously to stop exposure to market risk, or maybe the risk that prices may change on a single market before both dealings are finished.

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

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

“True” arbitrage requires that there be no market risk concerned.