Editing Arbitrage (section)

===Liquidity risk===
Arbitrage trades are necessarily synthetic, ''leveraged'' trades, as they involve a short position. If the assets used are not identical (so a price divergence makes the trade temporarily lose money), or the margin treatment is not identical, and the trader is accordingly required to post [[margin (finance)|margin]] (faces a [[Margin calls|margin call]]), the trader may run out of capital (if they run out of cash and cannot borrow more) and be forced to sell these assets at a loss even though the trades may be expected to ultimately make money. In effect, arbitrage traders synthesise a [[put option]] on their ability to finance themselves.<ref name="bm">{{cite web|url=http://www.purearb.com/purearb/wp-content/uploads/2009/03/desco_market_insights_vol_1_no_1_20090313.pdf |archive-url=https://ghostarchive.org/archive/20221009/http://www.purearb.com/purearb/wp-content/uploads/2009/03/desco_market_insights_vol_1_no_1_20090313.pdf |archive-date=2022-10-09 |url-status=live|title=The Basis Monster That Ate Wall Street|publisher=[[D. E. Shaw & Co.]]|access-date=February 12, 2011}}</ref>

Prices may diverge during a financial crisis, often termed a "[[flight to quality]]"; these are precisely the times when it is hardest for leveraged investors to raise capital (due to overall capital constraints), and thus they will lack capital precisely when they need it most.<ref name="bm" />