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Arbitrage refers to the practice of taking advantage of price differences between two or more markets or exchanges in order to generate profits. It involves buying an asset at a lower price in one market and simultaneously selling it at a higher price in another market, exploiting the discrepancy in prices.

In the energy commodities trading sector, arbitrage is commonly seen in the trading of commodities such as crude oil, natural gas, electricity, and refined petroleum products. Traders engage in arbitrage by identifying price differences between various markets or regions and executing trades to capture the profit potential.

Arbitrage opportunities can arise due to various factors such as disparities in supply and demand, regional pricing dynamics, transportation costs, and market inefficiencies. Traders utilize their expertise, market knowledge, and sophisticated trading strategies to identify and exploit these price discrepancies.

By engaging in arbitrage, traders aim to equalize prices across different markets, ensuring that commodities are priced efficiently and consistently. This, in turn, promotes market liquidity, enhances price discovery, and benefits market participants such as producers, consumers, and investors.

To learn more about arbitrage, you can visit the following active websites:

1. Investopedia – “Arbitrage”:

2. CME Group – “Arbitrage”:

This A.I.-generated glossary is intended to provide a convenient means to understand terminology used on this website in the context of physical commodities trading. Some terms may have alternative and/or expanded definitions that may not be relevant here and thus not included. Sources provided are for reference and not intended to be an endorsement of the broader content on that website. Suggestions, questions, or corrections can be provided in the comment box on definition pages.