Market practitioners mean pricing discrepancies, not riskless profit, by arbitrage

Evidence

LTCM practiced arbitrage on an unprecedentedly large scale. Its trading was “arbitrage” in the sense in which the term is used in financial markets: it sought to make low-risk profits by exploiting discrepancies in prices, for example when an unduly large “spread” had opened up between the prices of similar assets. — Donald MacKenzie, An Engine, Not a Camera, 947

Categorization

• DEFINE: Establishes the market-practice sense of arbitrage before contrasting it with the theory sense.
• XREF: connects to: Finance theory treats arbitrage as enforcing equal risk-adjusted returns — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1003; Modern options pricing derives from arbitrage logic, not directional beliefs. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1454

Broader Connections

• Finance theory treats arbitrage as enforcing equal risk-adjusted returns #contradicts (0.82) — Donald MacKenzie, An Engine, Not a Camera, 1003