types of arbitrage

There are many different types of arbitrage that can help you earn a profit. Learn some arbitrage strategies people are successfully doing.

There are lots of people who commit money arbitrage every day.

We’re not talking about the Warren Buffetts of the world. We’re talking about the mother down the street, your cubicle neighbor, and personal finance bloggers you like to read.

So what exactly is arbitrage…and how can you get in on the game?

What is Arbitrage Defined?

If you do a Swagbucks search for the definition of arbitrage, here’s what comes up:

“the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.”

Basically, it’s buying something from one place – coins, shampoo, bushels of wheat, etc. – in order to take advantage of a price difference for the same thing in another market (so you would sell it in the other market and reap the profit).

Sound intriguing?

Common Types of Arbitrage and How to Get in on the Action Yourself

Let me give you some examples of the types of arbitrage consumers are doing every day, and how to get in on the action if you’d like to.

  • Domestic Currency Arbitrage: There’s a stark difference in the cost of a penny, $0.01, and the value of the actual copper used to produce pre-1982 pennies, roughly $0.023 (the markets change daily, hourly, etc.). So by saving all the pre-1982 pennies you can find, you would reap twice the cost you paid for the penny! Of course, you can’t liquidate pennies legally in the United States (nor, ThePennyHoarder.com points out, can you take them out of the country to do that). But people are hoarding these pre-1982 pennies in the hopes that one day the US government will get rid of the penny altogether like other countries have done to their smallest form of currency. In the meantime, Kyle from The Penny Hoarder outlines a way for you to cash out on your pre-1982 penny hoarding anyway.
  • Foreign Currency Arbitrage: If you’ve ever traveled abroad and used that country’s currency, then you know how often currency exchange rates change relative to each other. For example, when I was living in Japan, we had to make our several-month rent payment of a few thousand dollars all at once. So we watched the currency market to see when the most beneficial day was to convert our lump sum into Japanese Yen (that’s a kind of arbitrage right there!). Well, you don’t need to live in another country to take advantage of foreign currency arbitrage. Here is Pauline’s experience with forex trading.
  • Retail Arbitrage: Retail arbitrage, where people buy products from one market and then sell them for a higher price on another market (taking advantage of pricing irregularities — either intentional or not), is pretty common. Here is an article about how to achieve this using Amazon's Fulfillment by Amazon program. My Dollar Plan also discusses her profits through selling on Amazon (in her second-year doing this, she saw $50,000 in profits!). Finally, Kyle from ThePennyHoarder.com thinks you could make $750/month selling used books online.
  • Balance Transfer (or Credit Card) Arbitrage: People with good credit can take advantage of credit card arbitrage. The idea is you open a credit card with a 12-month, 0% APR balance transfer promotion. Then you transfer a balance through a “convenience check” with the credit card company. Deposit that money into your high-yield savings account (not to be spent, by the way). Make the minimum payments needed each month on the card, and be sure to pay the card off before the balance transfer 0% APR promotion ends (or you could be hit with some significant fees). In the meantime, you earn interest on that money in your account. Madison from My Dollar Plan has a good rundown of this, where she's taken advantage of $200,000 in balance transfers at a time.

So, what do you guys think? Any of these sound interesting to you? Have you ever done arbitrage, and what was your financial gain? I'd love to hear about it in the comments below.

2 replies
  1. Glen
    Glen says:

    Thanks for the mention Amanda 🙂

    Arbitrage can be a really lucrative income stream if you get good at it. Some people even make a full time job out of it.

    Reply

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