The Ultimate Arbitrage Quiz

By: Staff

4 Min Quiz

Image: refer to hsw

About This Quiz

You love going to Sunday markets and garage sales. You especially love the idea of looking around for bargains at one venue and then reselling them at another, making yourself a nice, tidy profit. Did you know this form of trading has a name? It's called arbitrage and it's as old as time. Take the time now to answer everything you always wanted to know about arbitrage.

What element of risk is entailed in simple arbitrage?

In simple arbitrage, there's usually no risk at all.

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What is another word for "arbitrageur"?

An arbitrageur is the same as a trader -- someone who buys an item for one price and sells it for another (higher) price.

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A common example of arbitrage strategy is some people who trade on eBay and other:

Arbitrage strategy is regularly performed by some people on eBay as well as similar Internet auction sites.

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In sports betting, how does arbitrage operate?

In sports betting, one bettor might bet with two different bookies, each of whom offers different odds. This way, he'll make a profit, no matter who wins.

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Where are you more likely to find types of arbitrage -- on the street or in a multi-million dollar corporation?

Actually, you'll find arbitrage everywhere: on the street with the small fry as well as among the big fish in the big-bucks industries.

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How are financial markets designed to discourage arbitrage?

To discourage arbitrage, securities in financial markets are priced evenly.

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What is the term for minor differences in financial markets?

They're called mispricings and they occur when there are small differences in financial markets for a short time.

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If there is a mispricing, how does a trader make a profit?

A fast-thinking trader will make his kill by buying the shares at the lower price and quickly selling them at the higher price.

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All kinds of speculative arbitrage rely on techniques that magnify risk and reward for the investor. This is known as:

It's called leveraging. Speculative arbitrage uses all kinds of leveraging techniques to boost greater profit for the investor.

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One type of speculative arbitrage is statistical arbitrage. In what context is it used?

Statistical arbitrage is used in the context of equity markets, whereby data on statistical patterns are gathered over a period of time.

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