What is eBay Arbitrage?
Arbitrage. What does the term ring in your mind? I guess it will be a boring, financial and economic concept that has no relevance to you or should I say, you have no interest in understanding what arbitrage is.
Whatever be the case, you cannot escape arbitrage, and you will find this a widely used and accepted concept. Before proceeding to define what arbitrage is or explaining how people utilize this, let me share an extremely simple example. This is something you may have observed and experienced in your day-to-day shopping.
Let’s say you buy groceries from the local supermarket. Have you ever given a thought as to where the supermarket owner gets the groceries from? Let us become more specific now. Let’s say you buy fruits and vegetables from the supermarket. Now, let me ask you the same question. Where does he get the green groceries from?
Think about your answer. What answer did you think? Farmer? Wholesale market? Or did he grow his own fruits and vegetables?
If you thought the person grew his own fruits and vegetables, you are partially right because he can only sell so much with what he grows. Hence, he has to depend upon direct procurement from the farmer or purchase from the wholesale market.
When the supermarket guy purchases his grocery supplies from the farmer or the wholesale market, he buys at a low rate (because he buys in bulk) and sells the same goods at a higher rate in his supermarket. The price difference between the buying and selling price for the same good in a sense is identified as arbitrage. Let us look at some standard definitions of arbitrage.
Investopedia defines arbitrage as the simultaneous purchase and sale of an asset in order to profit from the difference in price. Essentially, arbitrage seeks to profit by exploiting price differences of identical or different instruments in different markets or in different forms.
Wikipedia defines arbitrage as the practice of taking advantage of a price difference between two or more markets, striking a combination of matching deals that capitalize on the imbalance between the markets, and the profit so gained is the difference between the market prices.
Look at the supermarket example above. Isn’t the supermarket guy making money or profiting from the difference in the wholesale price and the price at which he sells? This is essentially what arbitraging is – when there is an opportunity to buy at a low price and sell at a high price.
From an academic perspective, in economics and finance, arbitrage is a transaction that is risk free, after deducting transaction costs. Arbitraging works well when both purchasing price and transaction costs are low. Else, one cannot arbitrage.
People who engage in arbitraging are called ‘arbitrageurs.’ Most arbitrageurs are banks and financial institutions, who generally focus on financial instruments and seek to maximize profit through arbitraging.
While arbitraging on financial instruments is most widely prevalent, a new breed of neohustlers have found that there is more to arbitraging than investing only in financial instruments.
Mind the word investment because in the case of financial instruments there is an investment involved, i.e. purchase of shares or bonds or other instruments. One should also wait for the price to appreciate or fluctuate in a day and then sell when the going seems good.
What if I told you that you too can become another neohustler, albeit without making any investment?
Are you agape? I can see your mouth wide open… And if you are not, then you are already aware of this concept and it is nothing new to you.
Whatever be the case, I believe without any investment you can generate passive income, and all you need is a good book that will guide you into this field of generating passive income.
This is the guide you should refer to, and the platform that you will be using to gain a foothold on generating passive income is eBay. The process described here is called eBay Arbitrage. Let us quickly define what is eBay Arbitrage before getting into the details of this guide.
eBay Arbitrage is purchasing a particular item at a lower price from an online wholesaler and selling it at a higher price on eBay, and pocketing the difference. The key point you need to note here is that you do not physically purchase the item from the wholesaler but list the particular item on your seller account and when the customer places the order on eBay account, you, in turn, place the order from Amazon on the customer’s behalf. In essence, Amazon ships the item on your behalf to the customer.
Are you surprised at how this works? Well, that’s what I am going to explain in this guide – the how’s, do’s and don’ts of making money through eBay Arbitrage and clarify any specific questions that you may have. A case study will help you reinforce the concept, before wrapping up with some FAQs and the freedom that you will get by engaging your time on this.