Arbitrage offers unique trading opportunities in many securities, and most of the time in stocks. If you could buy a widget for $1 at one place and sell it for $2 at another place in the same day, you have a trading arbitrage opportunity. In the context of financial markets this would be the same as buying one stock at an exchange for for $10 and at the same time selling it on another exchange for $11, locking in a $1 profit per share.

Arbitrage is the simultaneous purchase and sale of the same or similar instruments or securities in two different markets for advantageously different prices. The word should be read in a very general sense because both legs of the arbitrage can be a number of securities or derivatives.

The definition essentially underlines two structural features of these transactions. First, the trades on the different instruments must occur at the same time. This characteristic is a direct consequence of the fact that arbitrage opportunities must be as close to risk-free as possible and they are usually short-lived. Secondly, the securities should be the same or highly correlated/co-integrated. You can go one further and include securities that are not actually similar but are believed to behave in a very similar way. This similarity in essence is an hedge, and by construction, it eliminates all and every risk beyond the actual execution.

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