Chances are, you've heard or read about "arbitrage," but you may not really understand what it is. The Motley Fool to the rescue!
Arbitrage is the practice of profiting from short-term differences in price of the same security trading in different places. Imagine that you can buy stock in Rent-to-Own Underwear Inc. (ticker: EWWWW) for $25 per share -- in the United States. Meanwhile, you see that it's currently selling for $25.50 per share in England. If you simultaneously buy shares in America and sell the same number of shares in England, you've earned a profit of 50 cents per share (not counting commissions).
This may not seem like much, but it adds up quickly if you're dealing with massive numbers of shares. That's why those who practice arbitrage are usually institutional investors with millions to invest (and are given the snooty-sounding title of arbitrageur).
If you're a new investor, you shouldn't be giving arbitrage much thought. Instead, consider checking out some of the offerings in our Fool's School. To learn more systematically, check out some of our inexpensive and well-regarded How-to Guides and online seminars (which feature money-back guarantees). You can also learn all about brokerages and find one that's right for you in our Broker Center.
For more personal finance and investing basics, visit our Personal Finance area, our Investing Basics area, and our Fool's School. You can also learn a lot via our book, The Motley Fool Money Guide: Answers to Your Questions About Saving, Spending and Investing .
