Arbitrage
Simultaneously buying and selling equivalent assets in different markets to lock in a price difference without directional risk.
Formula
Test: the combined position has offsetting exposures, so the profit is fixed at inception regardless of the underlying's movement
Unit
₹
In depth
True arbitrage is riskless in market terms but not in operational terms: execution risk, funding cost, margin requirements and settlement failure are all real, and the profit is small enough that any of them can eliminate it. Because it is riskless, competition drives the opportunity away quickly, which is why arbitrage in liquid Indian markets is the domain of algorithmic desks working in fractions of a second. Retail participants encounter it mainly through arbitrage mutual funds, which run cash-futures positions systematically. Anything advertised as arbitrage with a large return is almost certainly carrying a risk that has not been named.
Worked example
Futures at 24,250 against a fair value of 24,138 gives a 112-point gap, worth 112 x 75 = ₹8,400 per lot. After brokerage, STT, stamp duty and funding of roughly 40 points, the locked-in profit is about ₹5,400.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Arbitrage” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.