What is the definition of arbitrage?

The definition of arbitrage refers specifically to the simultaneous purchase and sale of an asset in different markets to capitalize on differing prices for that asset. This practice is fundamental in finance and trading, as it allows market participants to exploit price discrepancies that may exist due to inefficiencies in the markets. For instance, if an asset is priced lower in one market than it is in another, an arbitrageur can buy it in the cheaper market and sell it in the more expensive market, thereby securing a profit without any risk involved, assuming execution is instantaneous and markets are efficient.

In this context, the other options do not capture the essence of arbitrage. Holding assets for an extended period relates more to investment strategies rather than the immediate buy and sell characteristics of arbitrage. A strategy for long-term investment growth focuses on capital appreciation and income generation over time, diverging from the short-term, opportunistic nature of arbitrage. Similarly, assessing market risks is about evaluating potential losses from investments, which is a different consideration compared to the immediate exploitative nature of taking advantage of price differences.