Arbitrage is a profitable and relatively low-risk strategy for purchasing and selling assets. It works when an investor takes advantage of the differences in price of an asset in different markets. By taking advantage of these price differentials, an investor can purchase an asset in one market and simultaneously sell it in another, thus making a profit.

Arbitrage has the potential to make significant profits for investors. Although it is a relatively low-risk investment strategy, it can yield higher returns than traditional investments. The key to successful arbitrage is to identify market inefficiencies and determine whether or not they can be exploited for profit. A market inefficiency means there are differences in the price at which a particular asset is trading in different markets.

Arbitrage can be done either intra-market or inter-market. Intra-market arbitrage involves exploiting differences in price within the same market. This usually occurs due to discrepancies in the processing of orders or discrepancies between spot prices and forward contract prices. Inter-market arbitrage involves exploiting price differentials between different markets. For example, an investor can buy a commodity in one market and then sell it in another in order to make a profit.

Arbitrage opportunities are very short-lived, so investors must be quick to spot them and take advantage of them. The strategy also involves high transactional costs. Therefore, arbitrage may not be suitable for those with a low risk tolerance.

Overall, arbitrage is a relatively low-risk strategy for making profits in the financial markets. It involves buying and selling assets in different markets at different prices in order to take advantage of pricing discrepancies. To be successful with arbitrage, investors must be able to quickly spot potential opportunities and take advantage of them. Although there are some potential risks involved, the rewards of arbitrage make it a popular investment strategy.