Subsequently, market prices fell roughly ten percent in a hectic trading day. Arbitrage is the act of profiting without risk because the marketplace offers two different prices from the same thing. Normally, we wouldn't expect to find such divergence in price, but pricing discrepancies arise frequently enough that banks and investors around the world devote a significant amount of effort to arbitrage. Stocks and bonds are simple financial claims that derive their value from expected future cash flow. In the world of finance, cash flows drive most negotiations, investment decisions and corporate decisions.
Cash really is king in finance.
Many of us expect to be great investors based on information that we obtain in our day to day affairs. For example, you might happen to learn that a particular brand of tennis shoes has suddenly become very popular among college students. You could invest in the stock of the company that makes the shoes in order to profit from this information. In reality, though, there are thousands of other like-minded people who are trying to guess the latest trends and make a killing in the stock market. Thus, it is likely that prices in the stock market for the shoe company already reflect the information you are trying to profit from.