Arbitrage is a hot term these days, and it applies to the World of Warcraft just as much as it does to the world at large.

Arbitrage in general means the difference in price betweeen markets. I used to makes tons of money by arbitrating dark iron ore. I would buy it on the AH 20 for 20g. But I could make a dark iron bar out that and sell the bar for 30-40g. That meant if I bought 80 iron ore for 80g, I could sell the bars for 240-320g. Sadlly, that buisness dried up, but I found a new one, disenchanting.

For example, illusion dust and dream dust are very expensive on my server right now. So, I go to thott and search for illusion dust and find that at around item lvl 57 the odds for illusion dust dropping are about even. If illusion dust is 2g on my server, I start bidding on any greens that are > lvl 57 and < 2g. When I win, I DE, and sell the illusion dust.