Arbitrageurs play a very unique role in the commodity markets. They actually even out the pricing inefficiencies in the market but trying to lock in spreads. Before understanding how arbitrageurs operate in the commodity markets, let us first understand how they operate in the equity markets. If Tata Motors is quoting at Rs.440 in the spot market and at Rs.449 in the stock futures market, then the arbitrageur will buy Tata Motors at Rs.440 in the spot market and sell Tata Motors Futures at Rs.449. That way he can lock in an assured profit of Rs.9 (2% ROI) for one month. On the expiry day, the spot and futures position will expire at the same price enabling the arbitrageur to realize the 2% spread. Commodity markets can be slightly more complicated. Firstly, the spot and futures market in commodities are regulating by different regulators which makes it more complicated. Secondly, unlike equities, commodities have additional costs in the form of transportation charges, insurance costs, storage charges, stamp duty etc and all this will have to be factored in when calculating the spread. However, the bottom-line is that if the arbitrage spread on any commodity is positive after considering all these costs, then the arbitrageur will buy in the spot and sell in the futures. By ironing out any pricing anomalies, the arbitrageur will not only make an assured profit but will also ensure that the market becomes more efficient in the process. Arbitrage requires much more resources compared to speculating or margin trading.