Which term describes arbitrage by issuing parallel buy/sell orders in the same instrument on different venues?

Which term describes arbitrage by issuing parallel buy/sell orders in the same instrument on different venues?

• A. Market manipulation
• B. Arbitrage
• C. Painting the tape
• D. Wash trades

Answer: (B)

Arbitrage is taking advantage of price differences for the same instrument across different venues by buying in one place and selling in another at roughly the same time. The scenario described—placing parallel buy and sell orders for the same instrument on different venues—matches this idea perfectly, because you’re exploiting a price discrepancy between venues to lock in a risk-free profit (assuming execution is near-simultaneous and costs are low). It’s not market manipulation, which aims to influence prices or mislead others; it isn’t painting the tape, which is about creating an illusion of activity; and it isn’t a wash trade, which generates trades with no real economic effect. The defining feature here is the cross-venue price difference and simultaneous action to capture it.

Arbitrage is taking advantage of price differences for the same instrument across different venues by buying in one place and selling in another at roughly the same time. The scenario described—placing parallel buy and sell orders for the same instrument on different venues—matches this idea perfectly, because you’re exploiting a price discrepancy between venues to lock in a risk-free profit (assuming execution is near-simultaneous and costs are low).

It’s not market manipulation, which aims to influence prices or mislead others; it isn’t painting the tape, which is about creating an illusion of activity; and it isn’t a wash trade, which generates trades with no real economic effect. The defining feature here is the cross-venue price difference and simultaneous action to capture it.