Arbitrage is a trading strategy that exploits price differences of the same asset across different markets or formats to generate risk-free profits. For example, if a stock trades at a slightly higher price on one exchange than another, a trader can buy it where it’s cheaper and sell it where it’s more expensive. Arbitrage opportunities are typically short-lived due to market efficiency and high-speed trading systems. Common types include spatial arbitrage, statistical arbitrage, and merger arbitrage. While traditional arbitrage requires minimal risk, modern variants often involve complex algorithms and large capital. It plays a vital role in maintaining market fairness by aligning prices across platforms. Arbitrage is widely used by institutional traders and quantitative firms to ensure liquidity and price consistency.