How to Calculate Arbitrage

Arbitrage is becoming an outdated practice.

Arbitrage is an older investing option in which you would buy something for one price and then sell it to another party for a higher price right after purchasing it. For example, you have a person willing to pay $50 for a widget. You know in one market you can get widgets for $30, but the other person does not know this. You buy the widget at $30, then sell it right away for $50. This practice is rare now, thanks to the Internet and the fact that information is more broadly available than in the past.

Instructions

1. Buy an investment. For example, assume you buy a stock for $25 a share.

2. Sell your investment immediately. In the example, assume you had a buyer lined up before the purchase at $30 a share.

3. Subtract your purchase price from the sales price to find your gain. In the example, $30 minus $25 equals a $5 gain per share from the arbitrage sale.

References

• Investor Words: Arbitrage