Arbitrage means taking advantage of the mispricing of a financial instrument or commodity between two or more markets.For example if XYZ cos shares are listed on BSE and NSE and during the course of the day there will be moments when the price of the share could be different in both the markets suppose in BSE it trades @100 and in NSE it trades @99 then the arbitragers will come and buy the share from NSE @99 and simultaneously sell the share in BSE where it is trading @100 and ths action will result in a profit of Rs 1 to the arbitrager. Subsequently sooner the price difference in both the markets will be eliminated by arbitragers.As more and more shares are bought in NSE that will result in the increase in the price of share and more selling of the same in the BSE will decrease the price in BSE and soon the difference will be eliminated.
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