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Arbitrage typically involves buying and selling an investment at the same time in different markets, exploiting any price differences between the two.

Expanded Definition

Arbitrage is, or should be, about as close to a free lunch as possible in investing.

More commonly, merger arbitrage involves buying stock in a company that has an impending buyout or merger when its stock sells below the proposed offer price. If and when the deal goes through, the spread between what you paid for the stock and the buyout price becomes your profit, although the risk of the deal not going through can leave you wishing you never tried.

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