Arbitrage trading is a legal practice in many countries, including the United States and the United Kingdom. This type of trading is believed to contribute to market efficiency by ensuring that price discrepancies don't last long. Arbitrage involves taking advantage of price differences in different markets for similar or identical assets in order to generate low or no risk profits, once transaction and information costs have been taken into account. Not only is arbitrage legal in the US, but it is also encouraged as it helps to promote market efficiency. In addition, arbitrageurs also serve a useful purpose by acting as intermediaries, providing liquidity in different markets.
However, current market regulations prohibit traders from engaging in arbitrage during intraday trading. Arbitrage carries the risk of losing the opportunity to arbitrate, increasing your exposure to risk. But is arbitrage legal? In some countries, arbitrage is not only allowed but also encouraged. A classic example of arbitrage would be an asset trading on two different markets at different prices, which is a clear violation of the Single Price Act. Retail investors who want to take advantage of arbitrage but lack experience can invest in mutual funds that use arbitrage strategies.
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