What is political arbitrage?
Political arbitrage refers to trading activity that involves trading securities based on knowledge or estimates of future political activity. Political arbitrage can be country- or region-specific and is considered unethical since legal trading must be based on publicly available information.
Where have you heard about political arbitrage?
A common instance where political arbitrage might take place is ahead of a general election. Should it look like a government with particular business policies is coming into power, it may prompt a trader to short certain stocks or initiate certain long positions.
What you need to know about political arbitrage.
Another common example of when political arbitrage might take place is in war-sensitive zones involving stocks relating to oil and arms, with some investors potentially taking advantage of the opportunity to profit from private investments linked to public conflicts and events. In the event of impending government elections, political arbitrage is likely to be specific to that nation only, whilst the threat of war in particular regions may trigger political arbitrage to occur across a much larger region.
Find out more about political arbitrage.
Further understand the basics of political arbitrage by reading our definition of arbitrage.