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The dictionary term for abritrage is put:

The nearly simultaneous purchase of a good or asset in one market where the price is low, and sale of the same good or asset in another market where the price is higher.

In the SEM and SEO market it is simply purchasing traffic for a cheaper price than you can sell it as. There are lots of forms of abritrage, but the most popular is pay per click arbitrage. This is were you purchase search engine traffic from google, yahoo, and msn and then send the traffic to a highly converting webpage (a page full of ads). Most people use google adsense for revenue, but adsense has been cracking down on SEM arbitrage recently. Another way to generate revenue with ppc aritrage is to send the traffic to yahoo’s feed, generally speaking Yahoo wont care as long as the quality of the traffic is high. So only use google, yahoo, and msn and not 3rd tier search engines like 7search.

I personally make my cash of arbitrage, its is a very fun way to make money.