Arbitrage? - Trading-Lab

Leth · #1 12-05-2007, 09:08 PM

How do you actually trade arbitrage? What are some of the logistics/rules of arbitrage trading?

Alchemist · #2 12-06-2007, 12:38 PM

Arbitrage, in its purest form, is a rather simple concept: you take advantage of mispricings occuring in different markets on a certain trading product. That is, you buy the product on the market where it's trading at cheaper prices and sell it on the one with higher prices. The trading vehicle has to be the same on both markets to be categorized as pure arbitrage.

For example, MSFT is trading at $50 in the US, and $49 in European trading ( during those hours when the two markets overlap). the ideal trade would be to buy MSFT on the European markets and short MSFT on the US markets. When you have both of your sides on, you wait until the two prices converge and subsequently unwind your positions.

Of course, that is just a basic example as there's much more than that. I did not mention that you have to take into account foreign exchange rates to figure out how much the two instruments are mispriced and so on.

newbie · #3 12-10-2007, 09:19 AM

I understand the concept of arbitrage. It's actually pretty easy. Now I frequently hear people talk about statistical arbitrage which I guess is not what you are talking about, correct?

ElliottWave · #4 01-10-2008, 01:53 PM

can you make good money in arbitrage trading? thanks.

Alchemist · #5 01-11-2008, 08:28 AM

yes, you can make good money with arbitrage. however, that's also true with any other trading strategy. as long as you are able to find a trading style that matches your personality and apply rigid money management rules, your chances of succeding increase.

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#1 12-05-2007, 09:08 PM
Leth Super Moderator Join Date: Oct 2007 Posts: 621	Arbitrage? How do you actually trade arbitrage? What are some of the logistics/rules of arbitrage trading? __________________ Nothing is more difficult than the art of maneuvering for advantageous positions. - Sun-Tzu Trade with the trend, Ride winners, Cut losers, Keep bets small, Use Stops - Old School Last edited by Leth : 12-28-2007 at 07:43 PM.

#2 12-06-2007, 12:38 PM
Alchemist founder of Trading-Lab Join Date: May 2007 Location: New York, NY Posts: 296	Arbitrage, in its purest form, is a rather simple concept: you take advantage of mispricings occuring in different markets on a certain trading product. That is, you buy the product on the market where it's trading at cheaper prices and sell it on the one with higher prices. The trading vehicle has to be the same on both markets to be categorized as pure arbitrage. For example, MSFT is trading at $50 in the US, and $49 in European trading ( during those hours when the two markets overlap). the ideal trade would be to buy MSFT on the European markets and short MSFT on the US markets. When you have both of your sides on, you wait until the two prices converge and subsequently unwind your positions. Of course, that is just a basic example as there's much more than that. I did not mention that you have to take into account foreign exchange rates to figure out how much the two instruments are mispriced and so on. __________________ Happy Trading!

#3 12-10-2007, 09:19 AM
newbie Member Join Date: Oct 2007 Posts: 45	I understand the concept of arbitrage. It's actually pretty easy. Now I frequently hear people talk about statistical arbitrage which I guess is not what you are talking about, correct?

#4 01-10-2008, 01:53 PM
ElliottWave Junior Member Join Date: Jan 2008 Posts: 6	can you make good money in arbitrage trading? thanks.

#5 01-11-2008, 08:28 AM
Alchemist founder of Trading-Lab Join Date: May 2007 Location: New York, NY Posts: 296	yes, you can make good money with arbitrage. however, that's also true with any other trading strategy. as long as you are able to find a trading style that matches your personality and apply rigid money management rules, your chances of succeding increase. __________________ Happy Trading!