Business, Legal & Accounting Glossary
A financial institution that engages in arbitrage. Such firms search for market inefficiencies and securities which they feel are mispriced, and then undertake trades that allow them to make riskless profits. Arbitrage opportunities are often quite difficult to detect since mispricings can be very small. Also, arbitrage opportunities tend to disappear almost immediately since market forces act to reverse the opportunity. Because of these characteristics of arbitrage, many arbitrage houses are equipped with very sophisticated computer software and hardware to help them identify potential opportunities and act on them very quickly.
Many arbitrage houses also develop complex software-driven mathematical models to find mispricings and market inefficiencies.
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This glossary post was last updated: 5th November, 2021 | 0 Views.