For example, an investor might rent a residential property under a long-term lease and then list it on short-term rental platforms at a higher rate to earn a profit.
Search Arbitrage Example Imagine, you launch an ad campaign targeting keyword phrases like “budget travel tips.” First, you buy traffic through Google Ads at $0.10 per click. When users see your offer and click on it, they're directed to a landing page with travel-related content and ads.
For example, say lobster costs $8 per pound in Portland, Maine, and $20 per pound in Detroit. This would create an arbitrage opportunity where someone could buy lobster in Portland and sell it in Detroit for a tidy profit. Geographic arbitrage extends this idea to costs of living.
Let's say you bet $100 on the Cubsmoneyline at +110 against the Cardinals at FanDuel. You'd profit $110 with a Chicago win. At the same time, BetMGM lists the Cubs at -105 and the Cardinals -105. You can bet $105 on the Cardinals to win $100, and guarantee either a break-even or $5 profit.
Arbitrage trading is not only legal in the United States, but is encouraged, as it contributes to market efficiency. Furthermore, arbitrageurs also serve a useful purpose by acting as intermediaries, providing liquidity in different markets.
Ticket scalping is a form of arbitrage that involves buying tickets for events, such as concerts or sports games, and reselling them at higher prices.
While arbitrage is generally seen as legal and as contributing to market efficiency and liquidity, arbitrage activities are subject to regulations and securities laws to ensure compliance with market rules and prohibit illegal activities such as insider trading and market manipulation.
The example of risk arbitrage we saw above demonstrates takeover and merger arbitrage, and it is probably the most common type of arbitrage. It typically involves locating an undervalued company that has been targeted by another company for a takeover bid.