The Bottom Line For this reason, arbitrage is not only legal in the United States (and most developed countries), but also beneficial to the markets as a whole and conducive towards overall market efficiency.
Risk arbitrage differs from pure arbitrage in that it involves risk, whereas pure arbitrage seeks to lock in a guaranteed profit the moment trades are initiated. But the risks involved in risk arbitrage are calculated risks that, when done correctly, can be tilted in the trader's favor.
Short Answer Equilibrium models focus on market balance; no-arbitrage models ensure no profit from arbitrage opportunities.
Despite what anyways says, No, you can not make a living arbitrage.
The most frequent nontrivial example of no-arbitrage bounds is put–call parity for option prices. In incomplete markets, the bounds are given by the subhedging and superhedging prices.
And to answer the question – is arbitrage trading legal in India? Yes, it is, if you are taking stock delivery.
The Bottom Line For this reason, arbitrage is not only legal in the United States (and most developed countries), but also beneficial to the markets as a whole and conducive towards overall market efficiency.
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.
Arbitrage traders help align prices of the same or similar assets across different markets, which benefits the financial ecosystem as a whole. While arbitrage itself is legal, activities like insider trading, front-running, or manipulating markets to create arbitrage opportunities are illegal and subject to penalties.