Arbitrage is getting a good for a cheaper price and selling it for a higher price, such as buying something

at wholesale like Sam's Club and then going back and selling the same good for more money. It is buying
a product in one market, and going and selling in a different market where demand is higher.

the term Scalping usually deals with tickets to events, where one pays the face value of an item, and then
goes and sells them for a higher price where the market of the good is determined by the demand and
supply of the event.

Speculation involves buying or selling of assets to make a quick profit usually in short term investments

What is the difference between hedging and speculation?

Hedging involves taking an offsetting position in a derivative in order to balance any gains and
losses to the underlying asset. Hedging attempts to eliminate the volatility associated with the
price of an asset by taking offsetting positions contrary to what the investor currently has. The
main purpose of speculation, on the other hand, is to profit from betting on the direction in
which an asset will be moving.

Hedgers reduce their risk by taking an opposite position in the market to what they are trying to
hedge. The ideal situation in hedging would be to cause one effect to cancel out another. For
example, assume that a company specializes in producing jewelry and it has a major contract due
in six months, for which gold is one of the company's main inputs. The company is worried
about the volatility of the gold market and believes that gold prices may increase substantially in
the near future. In order to protect itself from this uncertainty, the company could buy a six-
month futures contract in gold. This way, if gold experiences a 10% price increase, the futures
contract will lock in a price that will offset this gain. As you can see, although hedgers are
protected from any losses, they are also restricted from any gains. Depending on a company's
policies and the type of business it runs, it may choose to hedge against certain business
operations to reduce fluctuations in its profit and protect itself from any downside risk.

Speculators make bets or guesses on where they believe the market is headed. For example, if a
speculator believes that a stock is overpriced, he or she may short sell the stock and wait for the
price of the stock to decline, at which point he or she will buy back the stock and receive a profit.
Speculators are vulnerable to both the downside and upside of the market; therefore, speculation
can be extremely risky. (To learn more, check out the Short Selling tutorial.)

Overall, hedgers are seen as risk averse and speculators are typically seen as risk lovers. Hedgers
try to reduce the risks associated with uncertainty, while speculators bet against the movements
of the market to try to profit from fluctuations in the price of securities.
Hedging is reducing the risk of a portfolio of investments by incorporating assets that are not perfectly
correlated with one another. The lower the correlation coefficent, the more risk reduction is achieved. This
is usually achieved through financial derivatives, such as options, futures and forwards. These
instruments are generally negatively correlated with their underlying assets. In English, that means that if
you want to reduce your risk on an investment, you buy something that goes up in value when your initial
exposure goes down in value.

For example, if I'm an orange farmer and I have a crop of oranges that's going to be ready for sale in 3
months, I obviously want the price of oranges to go up. I also get hosed if the price of oranges decreases
between now and harvest time. If I go into the financial market and invest in something that allows me to
profit if the price of oranges goes down (such as taking a short futures position in oranges), I can "hedge
away" some of my risk. That is to say, the price of oranges going down between now and harvest time no
longer hurts me. The downside to this strategy is that I have also lost my ability to profit if the price of
oranges goes up. In that case, my futures position loses value, which destroys any value created on my
orange crop.

Speculation occurs when an investor tries to take advantage of an expected price movement. For
example, let's say that I think that oil will get more expensive in the future. If I buy oil futures with the
intention of selling oil at a higher price later, I am speculating on the price of oil. Speculation is a risky
investment strategy.

Arbitrage is making risk-free profits using borrowed money. Before you get too excited, I should let you
know that so-called arbitragable situations are never, ever found in practice. Examples of arbitrage tend
to be very complicated. Again, they don't exist in practice, so don't worry too much about it.