So, what is futures arbitrage strategy? How do private equity funds arbitrage?
Arbitrage is everywhere in the trading market. When there are two different prices for a commodity, investors can buy the commodity in the low-priced market and sell it in the high-priced market, earning the bid-ask difference to obtain income. Different from other transactions, the potential profit earned by arbitrage is not based on the rise or fall of the price of the purchased goods, but on the expansion or reduction of the price difference between two markets or contracts.
According to the mechanism, it can be divided into related arbitrage and internal arbitrage. In related arbitrage, there is no inherent constraint between objects, and the price is dominated by the same factor, but the influence degree is not the same, so the arbitrage relationship can be established in different performances of different objects on the same influencing factor. In internal arbitrage, when the price relationship between objects deviates excessively for some reason, arbitrage can be generated through internal correction force.
According to specific methods, arbitrage can be divided into cross-species arbitrage, inter-period arbitrage and cross-market arbitrage.
The following is a detailed interpretation:
Cross-variety arbitrage
The first is cross-species arbitrage, that is, investors buy or sell a certain commodity (contract) while selling or buying another related commodity (contract), which is equivalent to doing a reverse operation. When the price difference between the two is narrowed or expanded to a certain extent, choose the trading method of closing the position. That is, the use of high-correlation commodities to establish a long-short combination, so as to capture the price difference behavior caused by the change of strength between varieties in time.
In the selection of varieties, cross-variety arbitrage may choose commodities in the same industrial chain, such as corn and starch, or commodities with substitution or complementarity, such as soybean oil and vegetable oil. Generally speaking, the relationship between these varieties is relatively easy to find the corresponding logic as a support. No matter from the perspective of fundamentals or statistical laws, the price difference can be narrowed or expanded through the change of strength between varieties, thus helping investors realize the price difference income. At present, cross-species arbitrage is mainly based on fundamental arbitrage and industrial upstream and downstream arbitrage. There are many CTA strategies on the private equity network, and there is no subscription fee for private equity products. Click to view
Intertemporal arbitrage
There is also intertemporal arbitrage, which refers to the operation mode in which investors set the same trading times in the opposite direction in different contract months of the same futures product and end the trading by hedging or delivery, thus earning the difference between them. Intertemporal trading is a common arbitrage strategy, which can be divided into bull spread, bear market arbitrage and butterfly arbitrage in practice.
The simplest intertemporal transaction is to buy the latest futures varieties and sell the forward futures varieties. This transaction is based on the fact that the price difference between two contracts deviates from the reasonable price difference. Investors can buy a contract and sell another contract at the same time, and then carry out the corresponding reverse liquidation after the price difference returns, so as to realize the income under the reasonable return of the price difference.
There are many factors that need to be considered in intertemporal trading: first, the fluctuation of recent contracts is more active than that of forward contracts; Second, short positions will make the spread bigger next month, and long positions will make the spread smaller next month; Third, the decisive factor of monthly price difference is inventory; Fourth, a reasonable price difference is an important factor in the rational return of price difference.
Whether intertemporal arbitrage exists requires investors to study the holding cost. In spot arbitrage, the relationship between holding cost and basis is compared; In intertemporal arbitrage, the relationship between contract spread and holding cost is studied. When the contract price difference of the same commodity in different months exceeds its holding cost, investors have arbitrage opportunities.
If you want to do intertemporal arbitrage well, you need to observe and understand the current market structure first, because different market structures can provide you with different safety margins and trading opportunities. Behind the different market structures, it actually reflects some deep-seated situations in the spot market.
Cross-market arbitrage
Finally, cross-market arbitrage. There are many kinds of futures in the market, all of which are listed on different exchanges at home and abroad. For example, gold and silver are traded in London, new york and China. These varieties are essentially the same commodity, but due to the different market environment and regions, the transaction prices are also different. Because it is the same variety, the price deviation in the market is usually within a relatively reasonable range. Therefore, when the price difference deviates to a certain extent, the market will start the process of "error correction". Under the "revision" of the laws of market economy, the price difference or price difference of commodities will gradually return to a reasonable range. Therefore, in this process, it provides opportunities for global cross-market arbitrage transactions.
Cross-market arbitrage generally requires three preconditions. First, the quality of the subject matter of futures delivery is the same or very similar; Secondly, the price trend of this futures product in the two futures markets has a relatively strong correlation; Third, the import and export policies are relatively loose, and trade goods can circulate freely between the two countries.
summary
Trading is a science, and arbitrage is everywhere in the market. The "arbitrage operation" in the capital market is like all kinds of purchasing in the circle of friends. When the price difference is large enough, you can make a profit. It is also similar to purchasing. One of the biggest risks of arbitrage lies in the uncertainty brought by time.