Arbitrage is a type of transaction in which an investor seeks to profit when the same good sells for two different prices. The individual engaging in the arbitrage, called the arbitrageur, buys the good at the lower price and immediately sells it at the higher price. Arbitrage is an attractive strategy for investors. Thousands of individuals devote their time to looking for arbitrage opportunities across markets and across products. If a stock sells on one exchange at one price and on another at a different price, arbitrageurs will go to work buying at the low price and selling at the high price.
The low price will be driven up and the high price driven down until the two prices are equal. So there is continuous convergence and price discovery.
If two investment opportunities offer equivalent outcomes, they must have equivalent prices. Equivalent combinations of financial instruments must have a single price. This drives us to the law of one price.