arbitrageur
Noun
Meaning
someone who engages in arbitrage (who purchases securities in one market for immediate resale in another in the hope of profiting from the price differential)
Source: WordNetSynonyms
Hypernyms
Examples
Given the profits he and Pharaoh must have made, one might call Joseph the first international arbitrageur.
Giuliani had his agents arrest Tim Tabor, a young arbitrageur and former colleague of Wigton, so late that he had to stay overnight in jail before posting bond. citation Heidi Collins, Allan Chernoff, Crystal McCrary Anthony, http://transcripts.
In this way, the arbitrageur makes a low-risk profit, while keeping ETF prices in line with their underlying value.
When a significant enough premium appears, an arbitrageur will buy the underlying securities, convert them to shares in the ETF, and sell them in the open market.
For instance an arbitrageur would first buy a convertible bond, then sell fixed income securities or interest rate futures (to hedge the interest rate exposure) and buy some credit protection (to hedge the risk of credit deterioration).
This leaves the arbitrageur in an unhedged risk position.