| If he bought and sold 1,000 shares, he would make a $110 profit. This may sound small, but for very little risk and a tiny sliver of time, that's not bad. And if he can keep finding arbitrage opportunities, the gains add up over time. In order for this to work, the trader will need to be able to trade on the TSX. Ideally he will execute the two trades as close to the same exact time as possible. This is because the temporary mispricing could self correct quickly and the arbitrage window would close. He should also make sure that the arbitrage profit is big enough to cover the trading cost-nowadays, online discount brokers offer very low commission rates, so that should be no problem. Another Way to Use Arbitrage Another type of arbitrage is to buy the shares of a company that's in the process of being taken over. Unlike the first example, the purchase and sale of the stock doesn't occur simultaneously. For example, Company ABC bought out Company XYZ for $20 a share in cash, but XYZ is trading at $19.50 a share. If the trader sees no chance of the deal falling through, then he could buy XYZ, hold until closing and pocket the $0.50 per-share profit when the deal closes. Beware of Opportunity Cost The drawback here is opportunity cost. If he bought XYZ, his maximum profit is capped at $0.50 per share. He could have used the cash to buy another stock that could have gained more in the same amount of time. The emphasis is on "could" because that stock could also fall. Losing money is the risk the trader takes when he buys a stock. On the other hand, if he bought XYZ, he's guaranteed a $0.50 per share return at deal closing. But he gives up potentially bigger gains if he used that money for something else. That's the trade off. Looking for ways to make even bigger gains, with reduced risk? My colleague Jimmy Butts has perfected a trading system that generates profits in up or down markets. Jimmy is the chief investment strategist of the elite trading service Maximum Profit. Jimmy is now inviting 50 investors to join him in the world's only "market hack" that actually works. His method is so ingenious, at first I thought it might be illegal. But our legal team assures me that it's perfectly legit. Jimmy's system can generate $37,000 or more in additional income, in a single year. Once you see how simple it is, you may never want to invest the conventional way again. Click here for all the details. | 
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