International arbitration involves buying and selling goods and securities in different countries simultaneously to take advantage of price differences. It is viewed as a low-risk investment, but requires fast communication and carries some risk due to market imbalances and the investor’s own influence on prices.
International arbitration revolves around taking advantage of price differences between goods and securities in different countries. While this is a common practice among many types of investors, the arbitrage is separated because the buying and selling occur almost simultaneously. When the broker is buying an item in one market, he is selling that same item in a different market. International arbitrage is widely viewed as a small or risk-free investment, as the initial purchase does not take place unless the profit is available at the time.
This investment method is based on multiple markets in very different locations. Although most investment markets are tied together by computer, that does not prevent minor discrepancies from arising in the system. Fast-moving assets, such as cash investments, will often see small increases in one area, but not others. This increase will translate through the system, but will often create a small bubble in the original market. This bubble will cause the good to have a higher or lower value than elsewhere.
International arbitration follows a fairly simple process, but what it lacks in complexity it makes up for in time. In a typical arbitrage situation, the investor is monitoring an asset in multiple markets. When they see a specific stock, commodity, or monetary bond selling for a different rate in a market, they buy it at the lower price. The investor then turns to the market where he is selling higher and sells it. The difference in the two markets is pure profit.
Since international arbitration is based on buying and selling almost at the same time, this process has increased as computers and technology allow instant communication. When an investor sees the imbalance in the market, he must act immediately before it closes. This requires almost instantaneous buying and selling, something that was impossible before communication systems went global.
While international arbitration seems like a no-fail type of investment, there is a small element of risk. The whole system is focused on the speed of communication between the buyer and the seller. If any part of the communication chain falters or lags, then the seller cannot capitalize on the appropriate price. Since market imbalances are often short-lived, even a few seconds could disrupt selling.
This is compounded by the effect the investor has on his own market. When the investor buys the asset with the lowest value, this automatically begins to increase the price of the purchased asset. This disturbance begins to move through the system, changing prices as the investor attempts to sell. To control the sale of the asset, the investor must stay ahead of his own influence.
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