An arbitrageur is an investor who attempts to profit from pricing inefficiencies in the currency market. Arbitrageurs do this by taking up offsetting positions in improperly priced currencies or currency derivatives in order to make risk-free profit. For example, currencies may be listed at exchange rates at different trading houses, or a currency pair may be quoted differently by separate brokers. The arbitrageur takes up positions that profit as the pricing inefficiencies disappear.
Arbitrageurs are usually sophisticated investors and hedge funds because finding pricing inefficiencies is getting more difficult as technology improves the speed of information. Arbitrageurs need to be quick in order to take up the position before competing arbitrageurs like hedge funds move in and smooth out the market. They also need to control enough capital to make the position meaningful enough that the market notices and corrects the problem. By taking up many arbitrage positions, arbitrageurs make the market more efficient. In an odd way, the efficiency they help create makes their search for inefficiencies that much harder.
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