In economics arbitrage is the practice of taking advantage of a state of imbalance between two (or possibly more) markets. A combination of matching deals is struck that exploit the imbalance, the profit being the difference between the market prices. Statistical arbitrage is an imbalance in expected values. For example a casino has a statistical arbitrage in every game of chance played, even though they could lose money on any single game. But casinos don't have all of those chandeliers, fountains and statues because they are losing money. Over time, the statistical imbalance will always be in their favor.

The term "arbitrage", is usually applied to trading in money and investment instruments such as stocks, bonds, and other securities, and the difference in asset prices are usually referred to as "the spread", so arbitrage is often defined as "playing the spread". Tomorrow we will look at a few real life examples of arbitrage...