A financial institution that generates revenue primarily by exploiting price differences of similar financial instruments in different forms.

This includes identical instruments, and being of a different form may entail being on a different market. The goal of such firms is to identify market inefficiencies, such as mispriced securities, and then place trades that produce riskless profits. This practice requires a very thorough and up to date knowledge of various markets, because price differences are often small and fleeting. Often very sophisticated computer technology is employed or developed by arbitrage houses to achieve this intricate knowledge.