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In economics, investment and sports, arbitrage is the technique of taking benefit from a cost difference between two or more markets: striking the variety of matching trades that  capitalize upon the difference, the gain being the difference between the market prices.

When utilized by academics, an arbitrage is a transaction that needs no damaging cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; simply, it is the probability of a risk-free gain at zero cost. Essentially free money from deals where no risk existed.
In commercial markets this is called ‘Arbitrage’. In betting markets it is called Matched Betting.

In principle and in academic use, an arbitrage is risk-free; in common use, for example statistical arbitrage, it could refer to expected profit, though losses may arise, and in practice, there are always risks in arbitrage, some minor (along the lines of change of prices decreasing income), some major (along the lines of devaluation of the currency or derivative).

In academic use, an arbitrage involves benefiting from variations in price of a single asset or identical cash-flows; in common use, it might be employed to focus on differences between very similar assets (relative value or convergence trades), for example merger arbitrage.

Those who participate in arbitrage are known as arbitrageurs perhaps a bank or brokerage firm. The term is especially ascribed to trading in financial instruments, such as bonds, stocks and shares, derivatives, goods and currencies.

Specific sport arbitrage has also recently become achievable as a result of accessibility to internet bookmakers giving widely diverging odds on sporting events creating situations where it is possible to place bets that cannot lose.

And even though this involves bookmakers it’s not gambling as there is no risk on the initial stake which can not be lost.

Arbitrage just isn’t simply the act of buying a physical product within a market and selling it in another for a better price at some later time. The deals must occur simultaneously to prevent exposure to market risk, or the risk that prices may change on a single market before both trades are completed.

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

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

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

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