Some may be familiar with the term arbitrage, but let me define it here:

Arbitrage is the practice of taking advantage of a state of imbalance between two (or possibly more) markets. Combinations of matching deals are struck to exploit the imbalance, the profit being the difference between the market prices.

So what does this mean in simple English? If you can find a situation where you can pay a smaller amount for a resource from one market and then turn around and sell that identical resource to another market for a larger guaranteed price then you are taking advantage of the imbalance between the two markets and realize a no risk profit.

Sound pretty cool right?

I mean, wouldn’t it be great to start a business where all you had to due was buy from one market and then sell to another at a higher price and make a guaranteed profit? What if you found a product that you could buy for $20 dollars and then you could turn around and sell it for $25 anytime you want? That’s the life if you asked me!

But, I have to be blunt with you here, if it was that easy everyone would be doing it. In the real world, to make a risk free profit from an arbitrage you have to be able to spot an opportunity before the next guy does.

So, what I want to do is give you some things to look for to spot arbitrage situations so that you can take advantage of them in the future. Knowing what to look for is half the battle, so here what you need to keep an eye out for

The Conditions for Arbitrage: (arbitrage is possible when any one of these two conditions is not met)

The same asset sells for the same price in different markets. (So, if you find and assets that sells for different prices in different markets then you have uncovered an arbitrage situation to that you may profit from.)

Two assets with the same cash flow must sell at the same price in different markets ( So, if you can find a cash flow to purchase at a discounted rate you can again profit risk free from this imbalance)

Now these are pretty simple concepts to understand, but uncovering them in the real world and even in your own home business situation can be a little bit trickier to accomplish. I want to take you through a few real world examples to help you get comfortable with the application of the concepts listed above. ( I want to try to help you to think outside of the box so as you read the examples ask yourself why they qualify as arbitrage according the two rules listed.)

Example #1:

Suppose I were to purchase a house worth $200,000 from a person who was about to be foreclosed upon for $7,000 in cash and then simply took over payment of the mortgage which had $120,00 left to be paid off then I turned around and sold the property for $10,000 below full market value. I would make a risk free profit of $63,000 for simply taking advantage of this situation. Why is this arbitrge?

Example #2:

Suppose that the exchange rates in London are