What is 'Arbitrage' in Finance?

This refers to the process of purchasing an asset from one market and selling it in another market. Commodities and financial securities are the most common assets which are targeted by swift speculators looking for profits. There is usually at least some risk involved in the process of arbitrage as the price of the asset could change drastically during the time when the speculator holds the asset, imposing huge losses on him. It has been argued that arbitrage helps to allocate assets to their most urgent needs of society, thus improving economic efficiency. Competition between speculators usually lowers the profits from arbitrage over time.

Source: The Hindu, 13/09/2018