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Glossary Term: INDEX ARBITRAGE

Definition(s) for INDEX ARBITRAGE:


1. ) Also called stock-index arbitrage, it refers to an investment strategy that involves the the buying or selling baskets of stocks or an asset or group of assets while at the same time executing offsetting trades in stock-index futures. For example, if stocks are temporarily cheaper than futures, an arbitrageur will buy stocks and sell futures to capture a profit on the difference or spread, between the two prices. By taking advantage of momentary disparities between markets, arbitrageurs perform the economic function of making those markets trade more efficiently.



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