Arbitrage and speculation are common ways to make profits in investment, and some institutions or main players will get the theory of maximization through these ways, but in fact, over-investment is not friendly to investors. Although arbitrage and speculation are both profitable means, there are still some differences in essence, as follows.

What is the difference between arbitrage and speculation?

Speculation refers to obtaining trading profits through the price difference of the same variety in different periods, which is a short-term risk operation. There are common stock trading, buying stocks at a certain time, selling them at a certain time in the future, and earning profits from the intermediate price difference.

Arbitrage refers to buying low and selling high through different varieties or different markets of the same variety through the price difference generated at the same time. For example, arbitrage trading between futures and spot, selling futures and then buying them in spot, or buying futures in spot and then selling them, while earning the difference between the two markets. There is also arbitrage between stocks and convertible bonds, and arbitrage can also be carried out between off-exchange funds and on-exchange funds.

Generally speaking, speculation is more risky than arbitrage. Arbitrage will only be carried out if there is profit, so its yield will be relatively high. However, speculation may not always succeed, because it has certain risks. Moreover, speculation does not consider the actual value, and the income may soar and plummet. Improper speculation will steal the chicken and not eat the rice, and arbitrage will help to improve some risks in the market economy.