What in the world is arbitrage? It’s one of those vocab terms that people haven’t heard of but everyone has done it at least once in their life. Many people do it repeatedly all the time. Again and again and again….

Any guesses?

No, it’s nothing indecent or forbidden but rather, it’s a business transaction. The process usually deals with finance and economics but it’s not only limited to those industries. Arbitrage is the taking of two or more markets with price differentials and profiting from the transaction with little to no risk. For example, if you could buy American money with your Canadian money at an exchange rate of 1.08 at Bank A and if you know that Bank B is offering to buy American money at a rate of 1.10, there would be an opportunity for arbitrage. You can start off with $108 Canadian dollars and exchange it for $100 American dollars at Bank A and walk over to Bank B and exchange those $100 American dollars for $110 Canadian dollars. The profit would be $2 and it is absolutely risk-free because the rates are posted rates with no uncertainty.

Buy Low and Sell High on eBay

I’ve been able to do a form of arbitrage on eBay on the rare occasion that an opportunity exists for it. Once in a while, if an electronics store is having a massive sale on products at bottom basement prices, I will buy multiple volumes of that item and re-sell it on eBay. It’s not pure arbitrage because the transaction is not immediate and there is risk involved. The risk is quite low and you are in complete control of the transaction. For example, if a set of earphones are regularly priced at $100 and they usually sell for $75 on eBay, an opportunity exists if those earphones happen to go on sale for less than the $75 average eBay final listing price.

It’s Better to Not Lose Money Than to Make Money

“It is better to live and fight another day than to die defending the un-defendable.”
You have to factor all the costs involved before you decide to venture into a buy low, sell high scenario. Don’t forget about eBay list fees and final value fees and the cost of shipping. It costs money to have the product shipped to you so that must be taken into consideration. Also, the amount of sales tax must be considered before you jump the gun and buy lots of stuff in hopes of striking it rich. Loss opportunities are fine as long as you learn from your past mistakes. It’s better to lose an opportunity than risk a negative profit situation due to impulse buying and careless thinking.