How is arbitrage defined in the context of trading?

In the context of trading, arbitrage is defined as the practice of taking advantage of price differences between markets. This involves the simultaneous buying and selling of an asset in different markets to capitalize on the discrepancies in price. For example, if a stock is priced lower on one exchange than another, a trader can buy the stock on the cheaper exchange and sell it on the more expensive one, securing a risk-free profit. This practice helps to ensure that prices across different markets remain aligned, as arbitrageurs act to correct those price disparities.

The other options do not accurately capture the essence of arbitrage. Simply buying and selling shares of a company does not imply any price difference exploitation and is too broad. Investing in high-risk securities does not fit the definition since arbitrage typically involves low risk due to the nature of the simultaneous transactions. Predicting market trends involves analysis and forecasting rather than exploiting existing price differences, which is central to the concept of arbitrage.