Arbitrage is essentially gaining money through moving assets around (i.e. not spending or investing, just transferring from one place to another). Here's an example I took advantage of today:
Amazon has a deal right now for Prime members: Amazon will give you a $5 credit if you purchase a $25 Amazon gift card with a promo code, found here (I expect this link will expire soon after January 2015).
Many people try to make it big committing arbitrage, my favorite fictional example being Kramer and Newman on Seinfeld:
Most arbitrage opportunities vaporize in an instant; you miss out if you're not the first mover, which is impossible in some markets now. For example, any arbitrage opportunities in the currency exchange markets are usually eaten up by bots owned by big banks.
Perhaps the greatest example of long-lasting arbitrage is from the miles rewards credit card holders who purchased dollar coins from the US government (my game theory professor was one of them!). You could purchase a box of hundreds of dollar coins at face value from the government using your credit card, then deposit the coins in your bank, pay of the card, and repeat. Some people racked up literally millions of miles before the government and airlines caught on. My game theory professor said he felt no guilt exploiting such an opportunity; in fact, he felt obligated to take advantage of it!
