Editing Arbitrage (section)

===Depository receipts===
A [[depositary receipt]] is a security that is offered as a "tracking stock" on another foreign market. For instance, a [[China|Chinese]] company wishing to raise more money may issue a depository receipt on the [[New York Stock Exchange]], as the amount of capital on the local exchanges is limited. These securities, known as ADRs ([[American depositary receipt]]) or GDRs ([[global depository receipt]]) depending on where they are issued, are typically considered "foreign" and therefore trade at a lower value when first released. Many ADR's are exchangeable into the original security (known as [[fungibility]]) and actually have the same value. In this case, there is a spread between the perceived value and real value, which can be extracted. Other ADR's that are not exchangeable often have much larger spreads. Since the ADR is trading at a value lower than what it is worth, one can purchase the ADR and expect to make money as its value converges on the original. However, there is a chance that the original stock will fall in value too, so by shorting it one can hedge that risk.