Arbitrage Profit Calculator

Formula

The formula to calculate the Arbitrage Profit (AP) is:

\[ AP = S \times \left( \frac{E2}{E1} \right) - C \]

Where:

$ AP $ is the arbitrage profit.
$ S $ is the amount of security or asset being traded.
$ E1 $ is the exchange rate in the first market.
$ E2 $ is the exchange rate in the second market.
$ C $ is the cost of the transaction.

What is Arbitrage Profit?

Arbitrage profit is a risk-free profit that results from exploiting differences in price for the same asset or similar financial instruments in different markets or in different forms. This involves buying an asset at a lower price in one market and simultaneously selling it at a higher price in another market, thereby making a profit from the price discrepancy. The practice of arbitrage helps to maintain price efficiency across different markets.

Example Calculation

Consider an example where:

Amount of Security or Asset (S): 100 units
Exchange Rate in First Market (E1): 1.2
Exchange Rate in Second Market (E2): 1.5
Cost of Transaction (C): $50

Using the formula to calculate the Arbitrage Profit:

\[ AP = 100 \times \left( \frac{1.5}{1.2} \right) - 50 = 75 \text{ dollars} \]

This means that the arbitrage profit for this example is $75.