What is arbitrage in F&O?

Arbitrage in F&O means buying a stock in the cash market and selling it in futures (or vice-versa) at the same time to lock in a risk-free profit from the price difference

Example in F&O:

1. Suppose Reliance stock is trading at ₹2,500 in the cash (spot) market.

2. Its Futures contract is trading at ₹2,520.

3. You can do an arbitrage trade:

• Buy Reliance in the cash market at ₹2,500
• Sell Reliance Futures at ₹2,520
• On expiry, both prices converge, giving you a risk-free gain of ₹20 per share (excluding costs like brokerage, margin, and taxes).

Key Points:

• Arbitrage in F&O is usually risk-free or very low risk, but profit margins are small.
• It requires speed, large capital, and low transaction costs.
• Professional traders and institutions mostly do this using algorithms.