The same thing shouldn't have two prices: cash-and-carry, put-call parity, triangular and interest rate parity arbitrage, plus the traps behind "risk-free".
For: learners who know the basics of futures, options and forex and want to understand the forces behind pricing
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
This course uses ideas from the courses below (optional; you can start right away).
The same bar of gold is priced differently in two markets. Buy on one side, sell on the other, and pocket the difference, until arbitrageurs close the gap.
Futures have a "fair value" worked out from interest and storage. When the quote strays from it, borrow to buy spot and sell futures, and the profit is locked in the moment you open.
There's an "iron law" linking a call and a put with the same strike. When prices stray from it, combine three legs and the payoff at expiry is a flat line.
Three currencies (dollar, euro, yen) and three exchange rates. If the third rate doesn't line up with the other two, going once around the triangle leaves you with extra money.
A forward exchange rate isn't a guess; it's worked out from the interest rate gap between two currencies. When it strays, arbitrage it in four steps: borrow, convert, deposit, lock in.
Buy spot and short an equal amount of perpetual futures: price moves cancel out and you just collect the funding rate. Is it really risk-free?
Two stocks that have long moved together drift too far apart: buy the cheap one, sell the expensive one, and wait for them to come back together. It's a bet that the relationship holds.
Risk-free on paper isn't risk-free in practice. Trading costs, funding pressure and execution delays can all spoil an arbitrage.
For the same gold, how far apart should near-month and far-month futures be? The gap is 6 months of interest and storage. If the far month is too expensive, buy near, sell far, and take delivery.
A convertible bond can be swapped for stock at an agreed price. When the stock jumps and the convertible lags, buy the convertible, convert, and sell the stock to pocket the gap, as long as you lock away the overnight risk.