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In the simplest of terms, Arbitrage means to exploit price differential.

Usually it meant looking at differing sources of an investment, and if there was a price difference between Source A and Source B - then the investor / dealer / broker / manager would buy from the lower priced source, and sell on the higher priced source.

Example:- The price of Stock ABC was $20 per share on Exchange XYZ The price of the same Stock ABC on another Exchange 123 - was $15

The dealer would buy the stock from Exchange 123 for $15 - then sell on Exchange XYZ for $20 - making $5 per share profit (minus costs).

Typically the price differential was very small - and trading had to be extremely quick and liquid - otherwise the markets could go against you in a very short time.

Ten years ago Arbitrage was more commonplace than it is today - for a number of reasons.

Nowadays, Arbitrage still exists, but either in limited formats and availability as direct arbitrage, or more commonly in Hedge Funds.

Hedge Funds can have Arbitrage as one of their investment methodologies / strategies - and you will find that many of the past Arbitrage Managers have switched across to Hedge Funds.

Even after the LTCM (Long Term Capital Management) scandal / fiasco a few years ago - Hedge Funds continue to grow, and today are the biggest and fastest growing investment style in th

In the simplest of terms, flyer means to exploit price differential.

Usually it meant looking at differing sources of an investment, and if there was a price difference midst Source A and Source B - then the investor / dealer / discount broker / manager would buy from the lower priced source, and sell on the higher priced source.

Example:- The price of Stock ABC was $20 per share on Exchange XYZ The price of the same Stock ABC on quite another thing Exchange 123 - was $15

The dealer would buy the stock from Exchange 123 for $15 - then sell on Exchange XYZ for $20 - making $5 per share profit (minus costs).

Typically the price differential was very small - and trading had to be extremely quick and liquid - otherwise the markets could go next to you in a very short time.

Ten years ago plunge was more universal than it is today - for a number of reasons.

Nowadays, venture still exists, but either in limited formats and efficacy as direct arbitrage, or more prescriptively in Hedge Funds.

Hedge Funds can have flyer as one of their investment methodologies / strategies - and you will find that many of the past plunge Managers have switched slant to Hedge Funds.

Even considering the LTCM (Long Term resource Management) scandal / fiasco a few years ago - Hedge Funds continue to grow, and today are the and fastest growing investment style in the World.

This doesn't mean that is dead - as it can be part of Hedge Funds. There are still some direct / explicit flyer Funds off work in the World.

Most of these concentrate on M&A (Mergers and Acquisitions) - or more usually Mergers.

The manager will forcefully seek companies which have been targeted as potentials for takeover, and buy into that company, in the hope the M&A unrest will drive up the price.

This method is often enhanced by the use of leveraging (gearing up / borrowing) (remember LTCM?) - and sometimes using Derivative Structures such as Options - or hedging methods such as selling short.

Depending on the structure, methodology, management style, leveraging etc., the potential rewards can be substantial, but so can the risks.

Not all venture investments are the same - just like any other class, I would strongly suggest that anyone considering this should perform their own Due Diligence and seek professional advice.

One very open place where plunge happens every day - by people just like you and me..... is eBay!

Sellers are locating items for sale from sources which may sell them very cheap (flee-markets, garage sales etc.) and then selling them online for a tidy little profit.

These people are exploiting the price differential - flutter - and there's nothing wrong with that!!

It’s all all but ‘Supply and Demand’ - but that’s not the type story!

(the information contained herein is for information purposes only and should NOT be considered as news or recommendation relating to the purchase or sale of any investment).

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