What is an Arbitrage?

Arbitrage refers to taking advantage of price differences in a financial instrument in two or more markets through simultaneous buying and selling in these different markets.

For example, BPCL shares are trading at Rs. 200 and its near-month futures contract are trading at Rs. 230. To capitalise on this, a trader buys BPCL shares in the stock market and sells its futures in the derivates market. This is called Cash and Carry Arbitrage.

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