Arbitrage investment strategies have traditionally been associated with mergers and acquisitions. Arbitrageurs are now among those strategists best known for squeezing the juice out of competing markets, buying low and selling high.

What is Arbitrage?

Arbitrage is a lot like buying low and selling high strategies. However, the difference is that arbitrageurs use the price differentials of opposing markets in order to effect the most profit from a low buy. In fact, a current example of an arbitrage investor is one who buys an antique school desk from a local flea market only to turn it around and sell it through an online auction for double the price he initially paid.

Arbitrage and Hedge Funds

Traditionally, arbitrageurs were closely allied with mergers and acquisitions, but have in recent years become associated with hedge funds. Hedge funds differ from mutual funds in that they are investment options that employ varying degrees of risk, while attempting to keep that risk as minimal as possible. Hedge funds allow some investors to parlay their money into significant profits. Arbitrage is just one of the investment options that hedge funds offer.

Risk Arbitrage or Merger Arbitrage

Risk arbitrage is sometimes called merger arbitrage or just arbitrage. These investment strategies are those in which investors rely on an arbitrageur’s expertise to lead them through merger and acquisition investments. Arbitrageurs typically work by buying up a company’s devalued stock at the exact time a merger or acquisition is announced. They will hold onto these stocks for the period of time leading up to the merger or sale, at which point they resell to the new shareholders at an often much higher value.

Real Estate Arbitrage

In this current real estate market boom, there are increasing situations of a kind of real estate arbitrage. Real estate investors have been regularly able in the last few years to invest on properties while turning around their investment in very little time, sometimes doubling their initial investment.

Investment Risks

Many financial advisors claim that arbitrage investing can be low-risk with many merger and acquisition deals taking place regardless of market trends, or with sell-offs irrelevant to market highs and lows. For this reason, arbitrage investment strategies are often sure bets. There are those very low risks, though, of deals falling through or antitrust cases taking precedence.

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