Negative Arbitrage, also known as "reverse arbitrage," is a trading strategy that involves taking advantage of price discrepancies in the same security or related securities across different markets.In traditional or "positive" arbitrage, an investor would simultaneously buy and sell the same or related securities in different markets, taking advantage of the price difference and earning a profit. However, in negative arbitrage, the investor would instead sell in one market and buy in another market, in the hope that the price difference will reverse and the investor will be able to buy back the security at a lower price and make a profit.Negative arbitrage can be risky because it requires a high degree of accuracy in predicting market movements and can lead to significant losses if the predictions are incorrect.An example of negative arbitrage is a strategy where an investor sells an overvalued stock in one market and buys the same stock in another market where it is undervalued. If the overvalued stock's price drops to the level of the undervalued stock, the investor can buy it back at a lower price, making a profit.Negative arbitrage is a complex and high-risk strategy that is not suitable for all investors. It requires a high degree of market knowledge, expertise, and a thorough understanding of the risks involved. It's not recommended for retail investors to engage in negative arbitrage strategy.
