Arbitrage takes advantage of hedging prices in different markets, by buying or selling credit instruments, and at the same time buying positions with the same amount but opposite directions in the corresponding markets, so as to profit from the small price difference.

Arbitrage refers to the use of different foreign exchange markets, different currencies, different delivery times and the exchange rate and interest rate differences of some currencies to buy from the low-priced end and sell from the high-priced end to earn profits. Arbitrage can generally be divided into three forms: place arbitrage, time arbitrage and arbitrage. There are two kinds of place arbitrage, the first is direct arbitrage. Also known as arbitrage between the two places, it is to make use of the exchange rate difference of a certain currency in two different foreign exchange markets, and at the same time buy cheap and sell expensive in the two markets, thus earning the profit of the exchange rate difference. The second is indirect arbitrage, also known as three-place arbitrage. When exchange rate differences occur in three or more places, buy cheap and sell expensive in the same currency at the same time, and earn the difference profit. Time arbitrage, also known as swap trading, is a combination of spot trading and forward trading, with the purpose of preserving value. Generally, spot and forward transactions are conducted between two fund owners at the same time to avoid the risks brought by exchange rate changes. Arbitrage, also known as interest arbitrage, uses the interest rate difference between the foreign exchange markets of the two countries to transfer short-term funds from the low interest rate market to the high interest rate market, thus earning interest income.

For example, 1 can buy 0.7 pounds, 1 can buy 9.5 francs, and 1 franc can buy 0. 16 dollars. A person who practices this trading method can get 1 .064 yuan by relying on1USD, and the interest rate is 6.4%.

A successful triangle arbitrage transaction must start in one currency and end in the same currency. But any currency can be used as the initial currency type.

Arbitrage has three characteristics.

First, large commercial banks are the biggest speculators in arbitrage business;

Second, the arbitrage trading volume is generally large, and the arbitrage profit is correspondingly rich;

Third, the arbitrage business uses telegraphic transfer.

Arbitrage business is generally divided into two-corner arbitrage and triangular arbitrage. Two-corner arbitrage is a transaction that uses the exchange rate difference between two foreign exchange markets in different places to buy and sell the currency in these two foreign exchange markets at the same time to earn the exchange rate difference; Triangular arbitrage is a foreign exchange transaction that uses the currency exchange rate difference between three different foreign exchange markets to carry out arbitrage transactions in these three foreign exchange markets at the same time and profit from the exchange rate difference.

Arbitrage is prohibited by the state and is considered from the perspective of stabilizing the exchange rate, which is related to many aspects such as macroeconomics, microeconomics and finance.