Like HowStuffWorks on Facebook!

How Arbitrage Works


Buying and then immediately reselling sports tickets on eBay and other auction sites can mean a quick profit for agile arbitrageurs.
Buying and then immediately reselling sports tickets on eBay and other auction sites can mean a quick profit for agile arbitrageurs.
Peter Macdiarmad/Getty Images

 

Did you ever buy something and then turn around and sell it right away to a predetermined buyer for a higher price? If so, you were engaging in a simple form of arbitrage -- a no-risk financial transaction that creates a profit. You were an arbitrageur -- a person who engages in arbitrage -- or a trader, for short.

People who buy and sell things on eBay or other Internet auction sites sometimes utilize an arbitrage strategy. In this case, a person buys a case of handheld video games from a local seller at a price she knows is much lower than the going price of handheld video games on the auction site. Then she turn­s around and resells the handheld video games on the auction site and makes a profit.

Like a chameleon, this type of commerce takes on different appearances, from the street vendor to the corporate mogul. In a 1980s movie based on arbitrage, the main character's name may remind you of a lizard-like creature. Find out which flick this is and learn about the different types of arbitrage on the next page.