In simple terms one can understand by an example of a commodity selling in one market at price x and the same commodity selling in another market at price x + y. Now this y, is the difference between the two markets is the arbitrage available to the trader. The trade is carried simultaneously at both the markets so theoretically there is no risk. (This arbitrage should not be confused with the word arbitration, as arbitration is referred to solving of dispute between two or more parties. )

The person who conducts and takes advantage of arbitrage in stocks, commodities, interest rate bonds, derivative products, forex is know as an arbitrageur. 

Arbitrage opportunities exists between different markets because there are different kind of players in the market, some might be speculators, others jobbers, some market-markets, and some might be arbitrageurs.

In India there are a good amount of Arbitrage opportunities between NCDEX, MCX in commodities.

In the Indian Stock Market, there are a good amount of Arbitrage opportunities between NSE, Cash and Future market and BSE, Cash and Future market.

Arbitrage is very safe as the arbitageur tries to simultaneously do buying in one market and selling in the other market, thereby reducing his risk.

In most of the transactions of Arbitrage in stocks and commodities markets, the traders tries to square up the transaction by reversing both his trades and he pockets the difference in this way.

In any transaction, 100% risk can never be removed but the risk is highly reduced in an arbitrage transaction because generally at the end of the settlement, the spot and the future price have to converge and that is when an arbitrageur can quit his positions without any loss.

Spread Trading generally refers to taking positions in various months of the particular commodity. For example: You buy oil of July contract and sell August contract or vice-versa depending on your perception of bullishness or bearishness.