A binding dispute-resolution process in which an impartial person or group of people hear the facts and decides how the matter should be resolved. Arbitration has the effect of a court order. Many brokerage firms require their clients to sign agreements stating that they will use arbitration, rather than take legal action, in the event that there is a disagreement. Stock, futures, or options exchanges, and other professional or regulatory associations are often involved in administering arbitration proceedings. Arbitration contrasts with mediation, which isnÂ’t binding on the parties.