arbitrage business definition

The simultaneous purchase and sale of substantially identical assets in order to profit from a price difference between the two assets. As a hypothetical example, if General Electric common stock trades at $35 on the New York Stock Exchange and at $34.75 on the Chicago Stock Exchange, an investor could guarantee a profit by purchasing the stock on the Chicago Stock Exchange and simultaneously selling the same amount of stock on the NYSE. See also basis trading, risk arbitrage, tax arbitrage.