Looking for Arbitrage

Arbitrage is a complex topic area but is relevant to everyone looking to build wealth. The following article outlines the topic of arbitrage and how it is relevant to you:

What is arbitrage?

Arbitrage means to look for an opportunity to exploit. In economic terms it means spotting a price difference for the same product in two different markets.

The reason that I've felt the need to write about arbitrage is that to build wealth you need to become a producer rather than a consumer. As such, you need to investigate and keep a look out for arbitrage opportunities. Virtually all profitable businesses are performing arbitrage in one way or another.

An example of arbitrage

A banking example of arbitrage would be a trader. The trader is working on the foreign exchange trading desk. The trader spots that £1 will buy $2 dollars in one market and £1 will but €2 in another market. In a third market $1 can buy €1.5. So the trader notes the arbitrage opportunity. The trader buys $2 using £1. Then they buy euros using the dollars and ends up with €3. Then the trader sells his euros for GBP (£s) and ends up with £1.5. The trader has grown the initial investment of £1 by 50% just by spotting the arbitrage.

I'm not suggesting that you're going to start to become a foreign exchange trader. However if your goal is to become rich then you need to be seeking out opportunities in every day life. For example, you may be round at a family friends and hear that their daughter is struggling with studies. You could offer to tutor.  Or else, you may really want a particular pair of shoes but have noticed that the price on eBay is three times those in store - perhaps you should try to get your hands on some and sell them online. You've taken advantage of an arbitrage opportunity!

Have you ever felt that you were wasting your time with business ideas?

If this has been the case with you then you need to think about occupying your time with some of your business ideas. I recommend carrying a small pocket notepad and pen for jotting down any business ideas as they occur no matter how ridiculous they might seem.

The next step is the hardest. Actually acting on the arbitrage opportunity. It takes an entrepreneurial mindset to actually capitalise on an opportunity. You need to mentally push yourself into action. 

Summary of arbitrage 

Remember that to spot arbitrage opportunities you need to do two things:

1) Keeping your mind open to opportunity and ideas.

2) Being willing to try things out.

Good luck spotting the arbitrage.

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