Arbitrage (also known as scalping) describes a trading strategy in which an asset is bought in one market with the intention of turning around and instantly (or, near-simultaneously) selling that same asset in a different market or venue. Traders that engage in arbitrage are attempting to exploit the often-minuscule price discrepancies that may exist between the two markets or venues. A latency-driven arbitrage strategy can involve prices that lag by a few milliseconds due to a technical glitch or slow server, for example, or simply come as a result of market fragmentation. For the latter, arbitrage doesn’t result from price lag, the rate simply varies across different venues within centralized exchanges (such as forex markets). Today, as financial markets increase their efficiency and interconnectedness, arbitrage opportunities have become harder to detect, more fleeting, and ultimately rarer. It’s now more difficult for even the best HFT systems to monetize any off-market prices. Market efficiency has also resulted in tightened spreads and commissions. As market makers and proprietary trading firms carry out arbitrage, they increase the available market liquidity for the public while competing against each other to capture the spread. It’s also important to note that some venues prohibit latency-only strategies because of their potential for causing conflicts of interest. For example, a market maker could be incentivized to “create” an arbitrage event by front-running their own customer in order to make a profit at the client’s expense. Therefore, if you are attempting to capture some form of arbitrage, it is important to find out whether your broker has any anti-latency arbitrage mechanisms in place, or if it permits scalping. Inter-market arbitrage: Arbitrage can also exist across instrument types for an underlying asset, such as between the forex cash (spot) market and forex futures markets, or between a forex derivative and underlying forex-related security, known as intra-market arbitrage. Stat arb: With statistical arbitrage (or, stat arb), traders track the correlation of multiple assets and attempt arbitrage when there is a deviation from the normal course of price action and traders have an expectation that it will return to a normal baseline. In such cases, arbitrage can involve more than two markets, such as with triangular arbitrage, or the use of three orders that are sent as a single multi-legged order.