==== ==== How to Master Stock Arbitrage ! http://scrnch.me/ghk4h ==== ====
Arbitrage offers unique trading opportunities in many securities, and most of the time in stocks. If you could buy a widget for $1 at one place and sell it for $2 at another place in the same day, you have a trading arbitrage opportunity. In the context of financial markets this would be the same as buying one stock at an exchange for for $10 and at the same time selling it on another exchange for $11, locking in a $1 profit per share. Arbitrage is the simultaneous purchase and sale of the same or similar instruments or securities in two different markets for advantageously different prices. The word should be read in a very general sense because both legs of the arbitrage can be a number of securities or derivatives. The definition essentially underlines two structural features of these transactions. First, the trades on the different instruments must occur at the same time. This characteristic is a direct consequence of the fact that arbitrage opportunities must be as close to risk-free as possible and they are usually short-lived. Secondly, the securities should be the same or highly correlated/cointegrated. You can go one further and include securities that are not actually similar but are believed to behave in a very similar way. This similarity in essence is an hedge, and by construction, it eliminates all and every risk beyond the actual execution. Arbitrage was highly popularized is the 1980's with many investment banks and hedge funds on wall street employing mathematicians and computer scientists to develop arbitrage trading models to manage their proprietary desks. Naturally markets would not be efficient without arbitrage traders to make them efficient. If the stocks are actually fairly priced and similar, we should be able to exit from the arbitrage at some point in the future. This may be a known value, for example, the expiry of a futures at a known date, at that time both legs should come together. In some cases the convergence is embedded in the system like a futures contract, for example, but in many instances it is more assumed than it is certain. Different arbitrage trading strategies are; - Risk arbitrage - Statistical arbitrage (also known as pair trading) - Volatility arbitrage - Convertible arbitrage Arbitrage is the most widely used stock trading strategy amongst professional traders and hedge funds.
Traders today use Arbitrage Trading Software to profit from these unique trades. One software that is available for online traders is Pairtrade Finder, http://www.PairTradeFinder.com this software spots pair trading arbitrage opportunities. Written by Jared Mann.
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==== ==== How to Master Stock Arbitrage ! http://scrnch.me/ghk4h ==== ====