No-arbitrage conditions are so often assumed in economics papers that they’ve come to seem magical. As I read more books by arbitrageurs, the obvious has become apparent: real people have the job of making financial markets equilibrate.Given that companies are trying to raise funds for their projects by offering shares of the profits on public exchanges — which is the state of things* — it’s not at all obvious that various mathematical balancing conditions should come about. It takes hedge funds and stat arbs spending their days looking for profit opportunities to smooth these markets out. For example, take high-frequency traders. They learn the nitty-gritty trading rules (aka market microstructure) and look for tiny opportunities to hold a security for just a little longer (intraday) and then sell it for more than transaction cost a wee bit later. Effectively they act as a short-term warehouse holding the security in between the person who wanted to dump it and the person looking to pick it up. Knightridge Capital and Jesse Livingston both advised traders not to fight the market, but to go where it wants to go. As with most ways of making money, to extract it over the long term you have to make the world more like people want it. (So I believe.) * but not necessarily the way things would have to be done. For example I could just call people up and ask them if they wanted a share of my company; or I could auction shares on eBay; or I could post a message on Craigslist to get local people to meet up and talk together about various people buying various proportions of the company.