Well I'm no expert (only what I know from university 10 years ago and working in related areas of finance), but it's the latter. One further piece of the story

Well I'm no expert (only what I know from university 10 years ago and working in related areas of finance), but it's the latter. One further piece of the story is that the positions are in different markets for related (or the same) financial instruments, e.g. if two different markets have different prices for e.g. USD/EUR you have a profitable arbitrage opportunity when the difference is large enough to cover finance/transaction costs. In other words, we're talking about situations where two markets have priced the same thing differently and obviously both cannot be correct -- therein lies the opportunity for arbitrage, before the prices converge.