Investment arbitrage has been around for centuries and it has been applied to virtually every investment vehicle from the Dutch tulip mania of the 1600’s through to the complicated currency arbitrage of today. So, it is little wonder that a new investment vehicle such as peer to peer lending has also attracted those looking to use arbitrage in order to make money.
But first let’s explain what we mean by arbitrage. A simple definition is the simultaneous purchase and sale of an asset in order to profit from a difference in price. With social lending arbitrage someone takes out a loan from a social lending site, presumably at a low interest rate and then reinvests that money to earn a higher rate of interest. The borrower/investor gets to pocket the difference. [Read more…]