Arbitrage refers to the practice of taking advantage of price differences in different markets to make a profit, typically with little or no risk. Although the concept is global, in the UK it applies across sectors such as financial markets, currency exchange, sports betting, and even retail reselling.
Types of Arbitrage in the UK
Here are the most common types:
1. Financial Arbitrage
Statistical arbitrage: Uses mathematical models and algorithms to find and exploit pricing inefficiencies between assets.
Spatial arbitrage: Buying a security in one market (e.g., the London Stock Exchange) and selling it in another (e.g., NYSE) where it’s priced higher.
Triangular arbitrage: Common in forex markets — involves trading between three currencies to exploit exchange rate differences.
2. Retail Arbitrage
Buying discounted products from UK retailers (e.g., Tesco, Argos) and reselling them at a higher price on platforms like Amazon or eBay.
3. Cryptocurrency Arbitrage
- Buying crypto assets on a UK-based exchange at a lower price and selling them on another exchange (UK or global) where the price is higher.
4. Sports Arbitrage (Arbing)
- Placing bets on all possible outcomes of a sporting event across different UK bookmakers where odds discrepancies guarantee a profit.
5. Tax Arbitrage
- Legally structuring transactions or investments to reduce tax liability by exploiting differences in tax rules or rates — typically used by corporations or high-net-worth individuals.
Legality and Risks - Arbitrage itself is legal in the UK, but it must comply with regulations (e.g., FCA rules for financial markets).
- Some types (like sports arbing) may violate platform terms of service and result in account bans.
- Risks include price changes, delays, fees, and regulatory issues.