Index arbitrage is a trading strategy that involves exploiting the price discrepancies between a stock market index and its underlying components or derivatives. The goal is to profit from mispricings that may exist between the index and the assets that make it up or financial instruments that track the index. ### How Index Arbitrage Works 1. **Identifying Mispricing:** Traders observe the index value and compare it to the combined value of the individual stocks that comprise the index.
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