Arbitrage is the technique of trading that guarantees a profit without taking any risk. Arbitrage has existed in various forms probably since the beginning of time, but in modern times it is now mainly associated with financial markets. Arbitrage traders use anomalies between different markets to secure a risk-free profit for themselves with each trade that they make. (An arbitrage opportunity if often referred to as an "arb".)
In relation to the financial markets, arbitrage is described as the purchase of securities on one market and immediate resale on another market to profit from a price difference.
An example of arbitrage in the financial markets would be if Coca Cola shares traded on the London Stock Exchange for £10.00 and also on the New York Stock Exchange for £9.50. To take advantage of this arb, an investor (known as an arbitrageur) could guarantee a profit by buying shares on the New York Stock Exchange (for £9.50) and simultaneously selling the same amount of shares on the London Stock Exchange (for £10). The arb trader only makes 50p profit per share bought/sold but if he trades a large volume of the shares he can make a substantial profit, which returns 5% on his investment.